Mortgage Interest Rates

[Psycho Sonny]

Tracker, I've gone for one every time since my first ever mortgage (which was a 2yr fix) and have yet to lose out. Currently paying 0.79%

Problem is currently trackers are more expensive than fixed and would have to be considerable movement downwards to benefit.

 

[Psycho Sonny]

So in a few years you can claim you 'saw it coming' ? . Like your previous 'the sage of interest rates' posts?

I'm going to either free up equity and go with a 5 year fix or alternatively not free up anything and a 2 year fix.

Reason being freeing up the equity I'll be more exposed to changes in interest rates so better off with security.

I don't see a big advantage with a tracker.

Reason for going 2 years would be to just build up equity to move in 2 years time.

Alternatively if I free up the equity it will be to do originally I was thinking 3 large projects I'm now upping that to 5 by adding a wrap around extension onto just an extension and garage conversion. And adding on a cheap attic conversion to full insulation and storage only, won't be used for living purposes just house a server and boxes, it equipment, etc and build storage and fully floor it properly so that it can hold more and be more organised.

Then log cabin for home gym or home office purpose and then double the current shed and get rid of the lawn mower as I'll removing all the grass and use the new shed as a cocktail bar with a open up hatch, etc.

I was speculating to see what others thoughts were. Personally I now don't see them going any lower. It was all just a rouze telling the banks to prepare for negative rates to boost confidence. I don't see it happening at all now.

So personally I would be recommending everyone to go for long fixes if you are staying put. Majority seem to be thinking the opposite so I'll bet long this time.

 

[Psycho Sonny]

I don't understand this, surely at the mo a tracker is going to be less interest than any fix?

Nope. Only for folk that took out trackers ages ago and have subsequently enjoyed interest rates moving down to where they are now.

If you try and get a tracker now it's more expensive than fixing.

Just do a quick 30 second rates query with your current provider for confirmation. Does make you think how the people who took these trackers several years back, what was their thinking behind it?

My bank it's a 0.2% difference so I would need the base rate which is currently 0.1% to go to minus 0.1% to break even but it would be a loss up until that happens. It would realistically have to go to minus 0.4% minimum to make it a worthwhile gamble.

I just can't see that happening and if it does it will surely make the markets go mental in terms of pensions, investments, commodities.

Going to go with a fix. Tracker just not worth the risk at the moment unless you know for a fact rates will be going negative and by a large amount for sure.

I can see them trying 0% first to see what that does before going negative.

I'm tempted by the 2 year for this reason to see where the land lies in 2 years. But then I'm thinking now is the probably going to be the time fixing long makes the most sense.

 

[Psycho Sonny]

Worth considering that a Tracker has the benefit of no ERC versus a fixed if you plan to move

Not always it depends on the lender.

A lot of trackers now carry early repayment charges.

Yes I know it's very cheeky of the crafty buggers. Always read the full terms and conditions. Your lender may not but a lot do.

 

[Psycho Sonny]

I'll just leave this here...



I would fix for as long as possible, at least if you don't think you're going to want to move within that timeframe (although I think you can move a fixed rate mortgage, but not had to worry about that yet).

If/when interest rates go up (and I'm not saying they will soon), I will overpay. Whilst I'm getting more return on my investments, the mortgage company can just take the minimum capital + interest repayments.

I get your point however it's very cheeky for that graph to stop at 2003.

At least could have included 2010 and 2017.

 

[Psycho Sonny]

Agreed. Wiki has a nicer one:

Looking at that chart my interpretation is.

Target / average is 3-5% overall.

During a recession it's normally 2%.

During the 70's and 80's there was a crazy boom where it went up to crazy levels averaging 15% with it going between 10-20%.

Since 2008 it's went crazy the other way where we are into unknown and unprecedented territory staying below 1% for the first time ever and for over a decade.

Realistically speaking it should only be able to go up but we are still far off the opposite swing the other way of the 70's and 80's.

If I was a bookies I would say it's 3-1 that they will go negative. Evens that they go up and 1-2 that they hover around the 0% mark.

It's impossible to say and the above saying go for a tracker. If they do swing upwards to curb inflation you would be crying.

The way I see it is they can't go much cheaper. So no real benefit to a tracker. They have a great chance of staying put and a small chance of going up.

I'm looking to fix long, take all the extra cash I would normally overpay and invest it in stocks and shares and commodities. I'm in the lowest band and plenty of equity I'll probably take £50k out when I remortgage and still be in the lowest band.

 

[Psycho Sonny]

Why do you project they will go negative? Just last week at the budget they are expecting the economy to rebound to within a few % of where it would have been if Covid didn’t happen within 2 years.

Negative interest rates would indicate things are getting worse not better.

I didn't. I said it's a 3-1 shot. The odds of them staying put and going up I had at better odds.

 

[Psycho Sonny]

If rates go up to anything like 5 percent you'd have a house price crash for sure.

I'm on 1.78 which at the time was 85 percent ltv I think (first home)
Got two more years left.

If I was doing it now, and I was on my own and didn't plan to sell I'd absolutely be fixing for 5 years . It's unlikely to go much lower. But it could go much much higher. Hopefully unlikely. But you never know

That rate you got sounds ridiculously good.

I was 80% LTV 5 years ago and I was given 2.84%. So at 85% to be given 1.78% is ridiculously good.

A week after I put my application in brexit happened and I think the price went down to 2.64% at my LTV.

It went down again a few months later which is likely during the period so around 4 years ago you must have gotten your deal or thereafter where they have remained low.

You were at the right place at the right time.

I'm now at the point where I'm being offered 1.49% that's nearly half what I'm currently at.

I think I'll be fixing for 5 years. Only a few more weeks until I can. 1st of April but it won't kick in until August or September.

So I'm going to ask if during that time if something else happens can I cancel and re-apply for another deal. Which gives me 5 months to see which way things go.

 

[Psycho Sonny]

Theres zero evidence that would happen or that it’s even a bad thing. That’s a ‘they’lll ruin the economy again’ type argument. The BBC reported the ex head of the home office was on £150k when he settled with the gov over Patel. That’s nothing for someone with that level of responsibility, the private sector would pay 2-10X that.

What happened the last time labour were in power?

Interest rates are set by the BoE which is sort of disconnected from the government. It’s ultimately driven by the market and inflation rather than any particular flavour of political party. If anything I would have thought that high rates would be more of a conservative thing, they make rich people richer at the end of the day.

I think both do.

Low rates means low cost of borrowing which can be used to grow your wealth.

You can also invest rather than pay off debts.

High interest rates again the rich are better off and the poorer suffer. As you then get better returns on savings and investments tend to return much better also and assets increase in value.

I don't think there is ever a scenario where poor people are ever better off. Because low interest rates means more affordability so prices increase.

Rates are a big topic because so many are walking a tight rope both rich and poor who have overextended hoping that they get wage rises and bonuses consistently and prices keep rising so their equity magically increases.

 

[Psycho Sonny]

If I am in a 5 year fixed, do I have any room for maneuvering for reducing my total cost?

I'm 2 years in, on a property valued at 450k with a balance of 382.7k. My LTV is now 85% but actually the valuation of the property has likely gone up as well (new bathroom, kitchen, windows). Is there merit in revaluing the house? Would I stand to gain anything?

Overpayments will begin inline with T&Cs once other half goes back to work in May.

Should have fixed for 2 years then used the lower LTV at that point for a better deal.

Unfortunately people don't give this information or suggestions when people ask how long they should be fixing for.

It's always best to fix shorter terms if there's a good chance rates won't increase and your LTV is high.

 

[Psycho Sonny]

Valuation aside I am only at 85% so need '2 more years' to really put a dent into it.

You get a better rate for every 5% you gain in LTV.

So if you can gain/knock off 5% within 2 years it's worth it. If you gain or knock off 10% or more that's even better.

So let's say you take out a 90% mortgage and manage to pay off 5% within 2 years well that will get you a better rate come renewal time after 2 years. Not a huge amount but it's something. But during that time you could have gained another 5% through value increase of the property so you move into 10% better LTV.

You have to factor in property increases too so you technically don't even need to pay off 5%, you don't need to pay off anything if your property increases by 10% you get your discount through that.


It's something a lot of people don't think about or are told about when buying their first home. It's only afterwards they realise that.

 

[Psycho Sonny]

Yeah makes sense. I am on 2.34% now so unsure if a 2year fixed would have been a higher rate at the offset?

The opposite. The lower you fix for the better rate you get normally. Obviously there is some rare cases of them being the same or less bit it's rare.

So on a 2 year fix it could have been 1.99% to begin and then after 2 years you could have dropped a band or two and got 1.89%.

 

[Psycho Sonny]

Just done an indicative looksy - with 382/450k it offers 2.57% fixed 2 years or 2.71% fixed for 5 years. With 405/450k it offers 3.23% fixed 2 years or 3.41% fixed for 5 years.

With a looking glass I guess I could have saved a bit!

It's best not to beat yourself up about it. It's a lesson learnt and hopefully you can pass on the advice to someone else so they don't repeat the same mistakes or at least understand what it all means and how things change in the future.

I could have saved a chunk myself but everyone I asked for advice all said go for a long fix because interest rates can only go up. A week after my application was approved they went down and down further still. So they were completely wrong. Even if they had stayed the same I could have benefited from the better LTV rates as I overpaid massive amounts thanks to investments I cashed in.

 

[Psycho Sonny]

Also didn't really think about that. By chance it might work out. Might hit 75 on remortgage. But certainly wasn't planned.

Nobody does. Awareness seems rather poor about it especially when people ask others for advice.

With rates being so low I plan to actually go against the grain and do the following.

Release equity (I only have 40% LTV so going to go back up to 60% whilst borrowing is so low)

Extend my term from 16 years to 35. This will make my monthly payments ridiculously low.

Use the equity release to do multiple projects which will increase the size of the home, usable space and value.

Use the money saved on monthly payments to invest into stocks, shares, commodities, etc.

I'd like to be in the position in 10 years time I can go straight out and buy my next home cash or close to that as possible thanks to the investments working for me. So the equity, term, etc doesn't really matter to me as I'm in the lowest band now thanks to both overpayments and increase in value over the last 4 and a half years. I've went from 80% LTV to 40% LTV in 4.5 years. My original plan was to keep on overpaying and be mortgage free within 15 years of the original purchase however decided it's better to gamble and aim much higher.

 

[Psycho Sonny]

It's not quite as easy using the value increase of the property though. I planned on doing this in my last house but the bank won't just apply average price increases and accept that as the value (or even specific local house price increases) I would have needed to pay for an official valuation of the house. Then there's the risk that if the valuation isn't enough to get you into the next 5% band it won't help your rate at all and you've just wasted a few hundred for the valuation.
In the end it worked out that I was quite close to moving down a band but the price increase wouldn't have been enough to take me into the next band below that so I could just overpay a bit extra from my savings and didn't look much more into a valuation.

Depends on the lender.

Obviously common sense applies too where you overvalue it the bank has to have a mechanism for its own safety.

Or else I could say my home has went up by 500k. I need to be able to prove that and some vendors will do more through checks than others.

I can show them x number of homes sold for much more than what I paid that are the same size and shape as mine after I bought mine.

 

[Psycho Sonny]

Struggling to get decent interest rates.

2 years ago I fixed at 2.8% and it ends 31st of May.

Can’t get lower than 3.16% which adds roughly £110 a month onto my mortgage, anyone else found this?

Fixing for 5 years saw the interest rate over 4%.

Has your home decreased in value?

 

[Psycho Sonny]

Got rejected for Nationwide the first time I tried to apply unless I wanted to pay 4.5%.

Are you self employed?

Earnings decreased?

Something isn't adding up here. It's extremely unusual for it to have increased when prices have stayed low for the past 4 years across the board with only slight increases and decreases bit of your house value has went up, you have made substantial overpayments and lowered LTV. Males zero sense.

Unless it's the fact that you have been rejected for a mortgage. That may explain things. You are seen as high risk.

I think it's best you speak with a broker for your own personal situation.

 

[Psycho Sonny]

No not self employed, it may even be my mortgage advisor not getting me the best rates, i am in touch with someone else who is getting me some different offers.

Here's the offers from my current mortgage advisor:

Option1: 2 year fixed rate at 3.12%, £650.00 per month, £499 fee to get the product

Option 2: 2 Year fixed rate at 3.54%, £688 per month, £0.00 fee

Option 1: stay with Clydesdale bank and set up a new fixed rate they have 2 deals available

Deal 1: 5 Year Fixed rate at 3.46%, £681.00 per month £499 set up fee

Deal 2: 5 Year Fixed rate at 3.74%, £706.00 per month £0.00 set up fee.

Option 2: Swap to a new bank: This will involve a whole application needing to be done to the bank which will mean a broker fee of £150.00 will be payable when the new mortgage starts.

Deal 1: 5 Year Fixed rate at 3.35%, £676.40 per month £1499 set up fee

Deal 2: 5 Year Fixed rate at 3.39%, £677.96 per month £999 set up fee

Deal 3: 5 Year Fixed rate at 3.44% ££678.32 per month £0.00 set up fee

I'd see what the other one comes back with.

I'd also give nationwide a call and see what they can do. I really like nationwide they come highly recommended from most folk.

 

[Psycho Sonny]

I've just checked credit karma and it's 600 out of 710.

Is there anything dodgy on your bank statements?

Do you gamble a lot? Betting activity and stuff along those lines? Lots of cash withdrawals? Especially at weird times like late at night?

Basically anything not considered normal?

 

[Psycho Sonny]

Not to blow my own trumpet but I am 638/710 on Credit Karma and 999/999 on Experian.

Your score being lower might point to you being a higher risk, and not just due to higher LTV band.

Every time you apply for credit it can impact your score, and being declined for credit can definitely hurt. Having lots of CC debt and stuff doesn't help.

They've probably rejected you due to being a higher credit risk.

I've seen people on HUKD and stuff chain swapping bank accounts to get intro bonus cash payments, but I always think doing such things can cause drops in credit scores that cause headaches down the line.

Mines is 654/710 and I'm just about to close a credit account I have to make it even better that I have running that I don't need.

If my working out is correct, I bought the house for 173k, paid 5% deposit of £8650 and then in May it’ll have been 24 payments of £573 totalling £13800 roughly.

I’ve then made 16k in over payments across the 2 years totalling £660 a month.

So for the 2 years I’ve been here, I will have paid off 28k, adding on the estimated value increase of 20k, that puts me at roughly 15% LTV?

Go onto your mortgage account. What's the outstanding amount?

Take that and plug that into a rates calculator with your home's current value.

E.g £150k outstanding on mortgage and home now valued at £190k it will tell you what your LTV is.