Advice for the smart homeowner
The difficulty with predicting mortgage interest rates is that there are 2 things to take into consideration.
Due to the global credit crunch, mortgage lenders are struggling to gain sufficient finance for mortgage lending. This shortage of funds is pushing up the cost of borrowing. Read the rest of this entry »
To find the best mortgage deals, you could visit the top 10 largest mortgage lenders.
However, the biggest mortgage lenders often do not offer the best mortgage deals. Sometimes the best deals come from medium sized mortgage lenders. Therefore, it is always worth shopping around through the business section of newspapers or online searches such as: Money Supermarket Deals
Getting the best mortgage deal also means that you want to look for the best mortgage product for your circumstances.
With the US economy heading towards recession, it is likely that this year will see a cut in UK interest rates.
As a general rule, UK interest rates often follow closely US interest rates. There is not a perfect correlation but often the trade cycle of the US and UK converge.
This week the Fed cut interest rates by 0.75% in response to concerns over a falling stock market and a weak housing market. It is likely that the MPC will soon follow suit, although the MPC will be more cautious about cutting interest rates by a large amount. In recent years they have always sort to change rates by 0.25% at a time. Read the rest of this entry »
The loan to value is a way of assessing a mortgage lenders balance sheet.
The Northern Rock has the UK’s largest ratio of mortgage to house value. On average it lends 59% of the value of a home. For subprime lending this rises to 68.3%.
For new mortgage lending, in the first half of 2007, Northern Rock lent an average of 78% of the value of a home. The next closest lender was Alliance & Leicester with 67%
One of the reason is that Northern Rock has sold a high % of 100% mortgages, it has also offered 125% mortgages. Therefore the value of its loan is a high % of the value of its assets (homes secured for a mortgage)
The problem comes if there is a fall in house prices. If house prices fall, then the ratio of loan to value will increase, making Northern Rock’s balance sheet look even worse. Because it has a high % of 95% - 100% mortgages many mortgages will show negative equity
Given the recent uncertainty in financial markets, the Bank of England took a cautious option to “wait and see”
Before the sub prime crisis affected the UK, many thought interest rates in the UK, would increase to 6% and possibly higher.
However, with the slow down in house prices and a growing credit crunch it now looks like interest rates may have peaked already at 5.75%.
The future of interest rates in the UK, depends on whether inflation remains close to its target of 2% +/- 1. At the moment it is difficult to predict because of conflicting inflation data. CPI inflation is 1.8%, but RPI (the old measure is over 4%). CPI inflation is on target, but, RPI is not.
Consumer spending in the UK is remarkably resilient, however, it will be interesting to see how the UK economy is affected by the global credit crunch.
If less mortgages are offered, then demand for housing may fall and therefore, house prices could start to fall in the UK.
If house prices did start to fall it would definitely leave scope for future interest rate cuts.
My feeling is that although it is unlikely house prices will fall significantly, we will see a slowdown in the housing market. With lower global growth, it is likely that interest rates can fall next year.
Future Fixed Rate Interest Rate Predictions
A 2 year fixed rate deal at the Brittania building society offers an introductory 2 year rate of 6.05%.
However, I would argue that now is not the best time to get a fixed rate. I think that in the new year, fixed rate deals will become more attractive. It is unlikely that interest rates will rise
After remortgaging, the next best solution for saving money on your mortgage is making faster mortgage payments.
Faster Mortgage payments can be made in two ways:
The good thing about making extra / faster mortgage payments is that everything goes on reducing the capital debt.
At the moment I am paying £800 a month on a £135,000 mortgage, but, only about 10% of that mortgage repayment is going on reducing the debt! The rest is just interest payments. This is because I am only 2 years into my mortgage repayment. Over the course of time, the % of my mortgage capital repayments will increase. But, this shows that you can pay off your mortgage faster, if you can make extra payments, especially in the beginning of your mortgage payment.
See also:
Mortgage Calculator for making faster mortgage payments
As the number of people with bad credit has increased there has been a corresponding rise in the number of companies willing to offer bad credit mortgages and adverse credit remortgages. Typically, these have been the most profitable aspect of the mortgage industry. This is because the poor credit ratings enable companies to lend at higher rates of interest than for a standard mortgage.
However, the adverse credit, or subprime sector, has been hit by the US mortgage crisis. The impact of mortgage defaults in America has been to make the cost of selling on bad credit mortgage much more expensive. Basically, this means companies are less willing to lend money for bad credit mortgages. They are also increasing in cost because of the increased risk associated with rising defaults.
For those looking to get a bad credit remortgage the cost is likely to be increasing quite soon.
Bad Credit ReMortgage Loans in UK
Credit Crunch leads to higher mortgage costs - How the credit crunch in the money markets is triggering higher borrowing costs, especially for bad credit mortgages. - Article at the Times
With the uncertainty surrounding the UK Housing Market and the mortgage industry, many are considering a 10 year fixed rate mortgage.
The current mortgage uncertainties over Northern Rock are unlikely to lead to short term rises in interest rates, however, it is difficult to predict where interest rates will be in the next decade.
The Britannia offer a 10 year fixed rate:
Option 1
6.09% Fixed for ten years, followed by our Standard Variable Rate, currently 7.45% variable for the rest of the mortgage. The overall cost for comparison is 6.7%APR. With full product fees.
This compares to a 2 year fixed rate at
5.79% Fixed for two years, followed by our Standard Variable Rate, currently 7.45% variable for the rest of the mortgage. The overall cost for comparison is 7.4%APR. With full product fees.
You can also find some mortgage quotes offering 10 year fixed rate deals here
There are over 130 10 year fixed mortgages on the market. They offer an appealing security for homeowners who wish to avoid the fluctuations of interest rates. By historical standards the 10 year fixed deals offer an attractive proposition. It is not that long ago that UK interest rates reached 15%. Those looking for a 10 year fixed deal can at the moment tie in at 6.09% with the Britannia Building Society.
The advisability of getting a 10 year fixed rate mortgage depends on the long term movement in interest rates. This is difficult to predict. But by historical standards interest rates could go higher, but, are unlikely to go much lower.
These are some of the companies offering 10 year fixed rate mortgages
If you really want security try:
10 year mortgages are also worth considering if you are in the process of remortgaging