hello all i'm new on here but thought i'd take the liberty to dive straight in and ask for advice !!! Our interest only mortgage runs out in dec 08, saw our mortgage advisor and he advised we stay with our current lender because they won't charge admin fee (nationwide). We owe 148,000 property is worth about 180,000 (maybe slightly less now the lower stamp duties come in) and we've been offered 6.2% on a 2yr fixed. Does this sound about right? He also said to phone up today to reserve that rate because he thinks rates will go up again before they start coming down, whats your opinion on this aswell ?

sorry for the long post,

cheers

charlton

Ok it's a toughy to answer, the main bank of england rate remains unchanged and they seem to nervous about the economy to anything with it just yet, however when looking at fixed rates the money is organised via the money market and due to the terbulance in the us from the veto of the $700 billion bill and knock on effect to money markets globally there have been many lenders pulling their existing fixed rates and increasing the rate on their new offerings, if the new bill gets the go ahead then this may releave the pressure globallly and rates may come down.

Its trying times for us mortgage brokers as like everyone else we are trying to guage things as well, all I would add is if you are fincially stressed and you can afford the rate offered then it may make sense just to take the plunge.

If however you can afford to wait and pay the higher variable rate you could 'suck it and see' but you must be aware this is a gamble which could go either way.

Regards

Stefan

Nationwide called me today to tell me that they are pulling their rates at close of business today - so you better get your skates on!!

Brian

The next move from the Bank of England will unquestionably be down.

The market has now fully priced a cut in October and any serious economist or market participant is forecasting a cut by their November meeting. Unfortunately, year end funding stress is causing some problems which may disuade retail lenders from cutting their rates but with TARP in the US looking set to go through in one form or another and further liquidity initiatives on this side of the pond stresses should reduce over time.

Looking further out, their is significant easing in rates priced in across the short sterling strip... remember that these contracts constitute the floating legs of interest rate swaps which directly affect the lending costs of banks and by extension their products. The significant repricing we've had on these contracts is probably the reason nationwide may be pulling their rates at close of business today, but just because they're rumoured to do this does not mean that they will be repriced at a higher rate or that their products won't get properly marked to market once nationwides own short term liquidity constraints are resolved. Once the BoE starts easing and we can get some steepness back into the curve rather than this horific inversion we have now, banks can recapitalize and effective rates WILL come down as well.

um.......nope, they went up!

...then nationwide's margins will be increased for now while the short term liquidity constraints (as mentioned in my last post and illustrated through the high LIBOR basis) play out. It won't last if the wholesale futures markets remain where they are else there is significant room for other lenders to undercut and destroy nationwide's market share.
I believe the question was more pointed towards year end effective rates by which time we will have experienced at least one cut from the Bank of England and additionally, lots of "toxic" MBS will have been deposited into the US's (now passed) TARP scheme creating some breathing room on UK bank balance sheets for more lending. The net effect is steepness in the curve and thus arbitrage opportunities for mortgage lending again at LOWER effective rates.

thanks everyone for all your advice over the last few days, we actually spoke to nationwide just before they put there rates up and managed to fix it at the lower rate, paperwork turned up to day but were not signing anything yet. We're lucky to have a couple of months to play with so if rates do come back down again before christmas then we can look for a better offer ! So far though its done exactly as i'd been advised, going up slightly before hopefully coming back down again before christmas !!

cheers

charlton

I agree with Phil Rush that rates will come down -- for all the various reasons he mentioned. However you should consider two things:

a) When you remortgage to another lender than Nationwide, the whole process might take up to 12 weeks. So just before Christmas might not be fast enough -- and I understand the new Nationwide deal at 6.2% will lock you in for another 2 years? So the right time to look for something better than 6.2% would be today!

b) There are deals today which are better, eg between 5.2-5.8% (HSBC and their 1stDirect division), but they are usually capped at LTV between 75-80%. With your valuation of loan/value = 148K / 180K = 82% approx, you seem unfortunately to be just above the threshold. On the other hand there are usually fixed fees attached between 1000-2000 GBP, that would be another 0.75-1.5% up front, or simplistically calculated over 2 years, add 0.4-0.8% to the cheaper rates p.a. So these fixed fees pretty much kill the advantage for you, as your mortgage isn't very large.

Conclusion:

Yes, it seems your mortgage advisor has got it right for now. Maybe Nationwide has a better deal until Christmas, probably internally they won't need the 12 weeks to shift you to another deal.

Nevertheless, don't you think you can find some savings you've made somewhere, in order to push your LTV another 7% lower, to below 75%? In your case, some 15,000 from an inheritance or an old ISA or something? Just in general 75% is a bit of a threshold below which there's much more competitive rates offered. Also think about whether your new deal should be a capital repayment mortgage rather than interest-only. The interest-only deals make me personally uneasy.

About me: Timing-wise I am in a similar situation as you, remortgaging from the Halifax as per end-of-year. I probably will go to First Direct at 5.49% tracker, which makes sense for me because the fixed fees don't play such a role for me, as my mortgage is much higher than yours, but my LTV is considerably lower at only ca 60% so I am in the range for these products. Also tracker means if BoE ease their base rate, my rate goes down with it. Added bonus is that 1st Direct offers this together with an off-set facility so I don't pay interest on whatever credit balance I have in my current account (daily calculated). Just thought I'd mention that.

Anybody has a better idea let me know ...

I can't say I've ever had a 12 week turnaround on a remortgage! The longest was possibly 8 weeks where we had a deed of postponement to get, but most are done in 3-4 weeks and Nationwide are pretty good.

Brian

The BoE cutting 50bp on Wednesday in order to get ahead of the curve was a great signal and well worth waiting for. Expectations on the strip have adjusted and are continueing to price in significant further easing which on top of all the new initiatives being launched should make funding easier for banks and lead to lower effective rates for everyone.

We are all doomed.

Are all these drops in interest rates just a bit of a marketing ploy? They tempt potential customers with new lower rates and then claw it all back by charging a bloody fee of £1000!!

well, believe it or not lenders are commercial institutions (some aer even state institutions now!), there to make money, same as a supermarket, car dealer, and probably your employer. All use marketing tactics and nothing instrinsically wrong with that. When considering a mortgage or remortgage, it is important to note that the headline interest rate does not accurately reflect the real cost of the mortgage. In the current climate I believe there's even more reason to use an independent financial or mortgage adviser.

Brian

Plus with the RMBS market still essentially shut, mortgage lenders actually have to hold on to the mortgages they issue rather than securitizing it and leaving the risks elsewhere. Rate variations can still be swapped out for consistent issuer income at wholesale market determined rates but until RMBS is openly trading and global demand returns, an additional risk premia which partially appears in the form of higher fees will exist.

Also, banks know that most people aren't too bright with things like this so they are able to apply fees and increase their income with a lower demand elasticity than if they'd hiked rates directly. Plus it frontloads bank revenue stream so that they get additional funds from customers now (i.e when banks need it more).

If you don't want to use a mortgage broker (and add further fees to an expensive process!), the maths associated with adding on the bank's fee is pretty arbitrary so you should be able to do that yourself once you know what you want (e.g. how long you're going to hold the mortgage for).

phil_rush:

If you don't want to use a mortgage broker (and add further fees to an expensive process!), the maths associated with adding on the bank's fee is pretty arbitrary so you should be able to do that yourself once you know what you want (e.g. how long you're going to hold the mortgage for).

most mortgage brokers don't charge fees Phil, and fees are only one aspect of selecting the most suitable lender

Brian