mortgage advice

[Energizer Bunny]

I'm glad I wasn't the only one who thought that was what was being said. From Rob and Cram's posts above I think we have been arguing at cross purposes. Still at least I got to talk about bank funding costs (generally banned by my friends)

 

[Mercenary Keyboard Warrior]

That's my view on this as well. I thought I saw somebody saying that Libor affects your mortgage rate whilst it is running, which of course it doesn't. If you're on SVR, it can, but as I said most people on SVR are there because they screwed up or have no alternative (i.e. they're not able to remortgage, trapped there etc).

Libor affects the design of mortgage products, pre-sale, on the market. It can affect everything from the interest rate, booking fees and product features (like early repayment charges). Once you've booked/applied for a particular mortgage product, Libor could shoot up 5% and you'd still get the old rate. Although bear in mind that the small print does say that they can "retract and cancel your application at any time" as long as they refund your booking fee.

Probably due to my first comment :
"Bank lending and hence mortgage rates are much more linked to inter bank rates than anything else." Then people started agruing very specific facts where as mine was a general statement that was supposed to point out that over the longer term BOE base rate is not the key market driver.
I probably should have been a lot more specific when I made that comment

 

[Energizer Bunny]

Group hug

 

[NathanE]

@robskinner, I don't think it was something you said.

It was more this post that prompted the "WTF sirens" to sound, for me at least:

Mortgages don't float over Libor? Rubbish. Libor is used all the time for setting mortgage rates. Chances are your bank is borrowing the money for your mortgage, they will be paying a rate that is linked to libor in some way and will mark this rate up by some % before passing it on to you

If it's some gross misunderstanding on everyone's part, then bleh...

 

[Mercenary Keyboard Warrior]

@robskinner, I don't think it was something you said.

It was more this post that prompted the "WTF sirens" to sound, for me at least:



If it's some gross misunderstanding on everyone's part, then bleh...

Ah yes I supposed. Which is correct but of course only until the point the mortgage is taken then its not

 

[NathanE]

It's the "float" word in there that looks so wrong. That suggests, to me, that perhaps a tracker mortgage would not only track the base rate but also track Libor. Which is of course ridiculous.

 

[cram]

It was more this post that prompted the "WTF sirens" to sound, for me at least:

I stand by what I said. There are plenty of people on products that are priced in relation to libor and have reversionary rates that were/are in reference to libor. This was particularly prevalent in the sub-prime mortgage market

Energiserbunnies statement of: "Libor is inter bank and used in loans to large corporates, but it usually isn't used in personal lending." is just not true.

Anyway seems that people seem to be roughly agreeing with each other now

 

[Energizer Bunny]

Alright that's a slight ambiguity, but fundamentally if you look at a loan to (say) BP it will float at X% over libor. A mortgage can be pegged to a number of things but I've never seen one that floats directly above libor. That was all I meant.

 

[cram]

Alright that's a slight ambiguity, but fundamentally if you look at a loan to (say) BP it will float at X% over libor. A mortgage can be pegged to a number of things but I've never seen one that floats directly above libor. That was all I meant.

Plenty of them float at x over libor. That tended to be the standard way of pricing in the self cert/sub prime markets. The libor rate was/is then set by the lender typically on a quarterly basis.

 

[NathanE]

Plenty of them float at x over libor. That tended to be the standard way of pricing in the self cert/sub prime markets. The libor rate was/is then set by the lender typically on a quarterly basis.

Trackers and Fixed mortgages don't float over Libor. So that's not "plenty" of mortgages. That's the two main types that don't track Libor.

Which leaves just SVR mortgages. How many people actually excitedly take out a SVR mortgage? Not many I suspect.

Even SVR's don't literally track Libor. SVR's are different for every bank. It's a combination of factors that determine the interest rate for SVR. Including, yes, Libor, but also how well capitalised the bank is (i.e. savings account deposits) and market/risk forecasts.

 

[Energizer Bunny]

Sub prime tends to have specific lending houses (most of whom are no longer with us) so they may have pegged to libor. Anyway lets assume (hope) the OP isn't sub prime or he won't be getting any kind of mortgage for a long time to come

 

[cram]

Ok sticking with sub-prime/self cert. The reversionary rate of the mortgage was frequently expressed x% + libor. The pricing of a fixed rate certainly took into account the rate of libor at the time of pricing. So again libor is a factor determing the price though I accept that the price is then fixed until the reversionary rate kicks in which then references libor at the end of the fixed rate. Trackers - depend on what they are tracking they aren't all linked to BoE

 

[cram]

Sub prime tends to have specific lending houses (most of whom are no longer with us) so they may have pegged to libor. Anyway lets assume (hope) the OP isn't sub prime or he won't be getting any kind of mortgage for a long time to come

The subprime market actually hasn't disappeared. It's still possible to get mortgages if you have arrears or CCJs. The difference is that those lenders that operate in that market are operating at a "cleaner" end of it than they used to. Also the cost differential between a "clean" mortgage and a subprime mortgage is greater than it used to be.

 

[NathanE]

Ok sticking with sub-prime/self cert. The reversionary rate of the mortgage was frequently expressed x% + libor. The pricing of a fixed rate certainly took into account the rate of libor at the time of pricing. So again libor is a factor determing the price though I accept that the price is then fixed until the reversionary rate kicks in which then references libor at the end of the fixed rate. Trackers - depend on what they are tracking they aren't all linked to BoE

That sounds like you are finally agreeing that "float" was a misnomer.

Fixed products don't track/float anything, not Libor, not base rate.

Tracker products track the BoE base rate, never Libor:

A tracker mortgage follows the Bank Base Rate set by the Bank of England and is charged at a defined margin to this rate – for example Base Rate plus 2%.

Tracker Mortgage
This kind of mortage has an interest rate which follows the Bank of England’s base rate. This means that your monthly repayments go up when the base rate goes up, and go down when the base rate goes down.

No mortgage products exist that solely track Libor. Because no bank solely depends upon inter-bank lending to fund their mortgage products. Short of maybe, Iceland Every bank has different levels of capitalisation (i.e. physical money/gold/quantitative in its vaults/computers). If a bank has a trillion pounds of capital that is unused then why would they need to use inter-bank lending to fund their mortgages? They wouldn't. And as a result such a theoretical bank would have ridiculously low SVR rates.

 

[cram]

Tracker products track the BoE base rate, never Libor:

That's not true. Trackers track a specified index it doesn't have to be BoE though for high street banks it frequently is. Platform home loans, Precise Mortgages, Mortgage Trust, Paragon Mortgages are example of lenders that have tracker products that track libor.

 

[NathanE]

That's not true. Trackers track a specified index it doesn't have to be BoE though for high street banks it frequently is. Platform home loans, Precise Mortgages, Mortgage Trust, Paragon Mortgages are example of lenders that have tracker products that track libor.

Hang on, I thought this thread was about consumer mortgages. When did we start talking about commercial mortgages?

Bear in mind also that many of those example lenders are not traditional banks. They don't have savings accounts. So it is no surprise that they have to rely heavily upon inter-bank lending to fund their products. That's why they've linked their products directly with Libor.

 

[cram]

Those were lenders that I named off the top of my head in response to your assertion that NO tracker product ever tracks libor. They don't just do commerical mortgages. The platform product is not a commerical product (and I think they are owned Britannia IIRC), Precise and Paragon are offering BTL's again not a commerical products.

Those were lenders that I named off the top of my head in response to your assertion that NO tracker product ever tracks libor. They don't just do commerical mortgages. The platform product is not a commerical product (and I think they are owned Britannia IIRC), Precise and Paragon are offering BTL's again not a commerical products.

Incidently taken from one of the sites you linked to

http://www.yourmortgage.co.uk/mortgage_basics/tracker_mortgages
Tracker mortgages

This type of product follows the Bank of England Base Rate or the lender's Standard variable rate (SVR's), plus or minus a certain percentage. For example, if your two-year tracker has a rate of Base Rate (BBR) plus 0.5%, if the Base Rate is 1.5%, your product rate will be 2.0%.

However, if the Base Rate drops to 1.0%, your rate will also fall to 1.5%. If your mortgage tracks your lender's SVR it may not necessarily change in line with the Base Rate, however a Base Rate tracker is guaranteed to. It is also possible to get mortgages that track other rates, such as LIBOR (London Interbank Offered Rate; the rate at which banks lend to each other), but these products are nowhere near as common.

 

[NathanE]

BTL are commercial mortgages. They have nothing to do with this thread.

A mortgage that tracks Libor isn't one that comes from a bank. It is basically a different form of broker, because they are lending money that doesn't actually belong to them. Not even a single penny of it.

Every definition of the word "tracker mortgage" in the consumer market will say it tracks BoE base rate.

 

[cram]

BTL are commercial mortgages. They have nothing to do with this thread..

Thery're not residential mortgages but it's not correct to call them commercial either. But Platform certainly offer residenital mortgages.

A mortgage that tracks Libor isn't one that comes from a bank. It is basically a different form of broker, because they are lending money that doesn't actually belong to them. Not even a single penny of it..

Depends on your definition of bank. Banks don't just self fund mortgages. Neither do building society for that matter though there are limits on the amount or % of money they can raise on the wholesale money markets.
I don't know whether you read the mortgage press or not but one of the current worries for availability of mortgage funds is the current high rate (in respect of it gap from BoE) of libor.

Every definition of the word "tracker mortgage" in the consumer market will say it tracks BoE base rate.

The quote from the site that you linked to seems to say otherwise.

 

[Deleted member 77746]

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