That's bigger than my 3 bed detached living room and kitchen!
Mortgage Rate Rises
- Thread starter glenimp617
- Start date
That's bigger than my 3 bed detached living room and kitchen!
Soldato
Seen an article pop up on my news feed this morning about Labour possibly pushing for more common 25 year fixed rate mortgages.
Usual suspects criticising it mainly citing moving rates and ERCs. It just needs will though - why do we even need ERCs in the first place, just stop them and then people are free to take out a longer rate with no risk- you can switch later if rates reduce.
Usual suspects criticising it mainly citing moving rates and ERCs. It just needs will though - why do we even need ERCs in the first place, just stop them and then people are free to take out a longer rate with no risk- you can switch later if rates reduce.
Associate
To purposely make it as hard as possible to switch. The banks have worked hard to lock us all in on 5% rates...
Not necessarily, you still have to swallow the mortgage arrangement fee and solicitor fees to move between banks. Banks can just front-load their mortgage products to reduce peoples appetite to jump about.
That would also make it more expensive if they front loaded it.
At least with ERCs most people don't have to pay it.
If it was front loaded you'd have to pay for it regardless.
It's already front loaded with arrangement fees etc. They could just force people to pay it upfront instead of adding it onto the term.
Soldato
But if it was spread over everyone the amount would be so minimal it would be unnoticeable. Better that and having a more open more fluid market I think.
Sites like his killed matches betting too as it took all the hard work/edge away and people who had no idea what they were doing just following guides.
Soldato
I cannot see how scrapping ERCs could work in practice.
The point of ERC is to lock you into a deal that gave the lender some confidence.
So they are borrowing funds long term and need some certainty they are going to make some profit on the deal.
I mean why would they even consider lending you money over long periods if you but not they can get out of it at any time on a whim.
Sounds completely unbalanced and its typically really hard to get someone to form a contract thats really unbalanced against them.
Its sounds very much from thinking along the lines of I should be able to borrow loads of money at virtually no interest rate.
These sorts of thing often come with consequences that are unforeseen and create other issues elsewhere.
I would support some legislation in regards ERC being more balanced, so maybe the maximum ERC is a formula, which links the length remaining of the fix to set a maximum.
Avoiding situations like with many Santander mortgages where the ERC is for the mortgage life.
So I mean say formula is : ERC is 5% x (original loan term / remaining loan term)
This would bake in 5/4/3/2/1% for a 5 year fix
A 10 year fix would give you 5/4.5/4/3.5/3/2.5% etc
I would also legislate that if the current lender cannot give a competitive mortgage on a move then the ERC is void.
Some other considerations as well such as death of mortgagee etc.
The point of ERC is to lock you into a deal that gave the lender some confidence.
So they are borrowing funds long term and need some certainty they are going to make some profit on the deal.
I mean why would they even consider lending you money over long periods if you but not they can get out of it at any time on a whim.
Sounds completely unbalanced and its typically really hard to get someone to form a contract thats really unbalanced against them.
Its sounds very much from thinking along the lines of I should be able to borrow loads of money at virtually no interest rate.
These sorts of thing often come with consequences that are unforeseen and create other issues elsewhere.
I would support some legislation in regards ERC being more balanced, so maybe the maximum ERC is a formula, which links the length remaining of the fix to set a maximum.
Avoiding situations like with many Santander mortgages where the ERC is for the mortgage life.
So I mean say formula is : ERC is 5% x (original loan term / remaining loan term)
This would bake in 5/4/3/2/1% for a 5 year fix
A 10 year fix would give you 5/4.5/4/3.5/3/2.5% etc
I would also legislate that if the current lender cannot give a competitive mortgage on a move then the ERC is void.
Some other considerations as well such as death of mortgagee etc.
Associate
When you say mortgage life, you mean product life?
I've had loads of Santander mortgages and ERC's stop as soon as the product ends on all of them, not when the entire mortgage is paid off.
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Soldato
Yes indeed, the fix term.
Soldato
Yes my Santander mortgage is 5% ERC for full five years. But it was the best deal for me despite this. I wouldn't lock into paying ERCs for more than five years with no get outs, too restrictive.
Soldato
Its really important in regards the rates and where in the term.
My 10 year fix was nasty at the start, but still declined so you know what your getting into.
Even though my mortgage was like 40% LTV I still took it over 20 years, with a 10 year fix. I valued the certainty.
IIRC it was 5% for years 1-6, then 4321 for the last 4 years.
I paid it off over 8 years anyway with overpayments.
May vary by lender, but all the ones I have seen the actual ERC is after deducting the allowed annual over payment.
So the reality is the actual % will vary by individual as well.
25 year mortgages are fine, as long as they can be ported and have sensible ERC and overpayment terms.
That could be a specific break clauses to cover situations (e.g. family breakdown and not we’ve found a better deal) or after milestone time periods or repayment levels, that’s not to say the break clause should be free.
That could be a specific break clauses to cover situations (e.g. family breakdown and not we’ve found a better deal) or after milestone time periods or repayment levels, that’s not to say the break clause should be free.
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Associate
Same here, would be my last ever mortgage. Paid off in 2036 if I don't overpay, but I fully intend to.
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I've not really seen that, for example the smallest room in my townhouse is bigger than two of the bedrooms in my dad's Victorian semi. My old childhood bedroom is absolutely tiny, less than half the size of the smallest bedroom in this house.
Similarly, in our old Victorian semi, the third bedroom was just a single room, maybe half the size of our smallest room. Victorian houses seem to be the king of box rooms, although they have a lot of other benefits.
Townhouses just make a lot of sense to me from a logic/efficiency perspective in a crowded nation with expensive land, more floor area for a given land footprint, so it's a more efficient use of space. Similar to how in the big cities you get a lot flats, you can't just have hordes of detached bungalows and stuff.
That's not to say I wouldn't prefer a 'flatter' home with less need to go up and down stairs, but for a given footprint, I'd obviously want as many decent sized rooms as possible. I wouldn't want to pay more money for less floor area.
The biggest downside with townhouses for me is that they perhaps lack ground floor space, really I want at least 100m^2 on the ground floor which is quite rare in townhouses. Things like a study tend to get pushed upstairs.
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Same for my townhouse too, the smallest bedroom is 4m x 5m (4 bed property).
Definitely, ERC is essentially risk mitigation around offering competitive fixed rates, if there were no ERC everyone would just constantly (slight exaggeration) hop around, so you'd sign someone up on a given rate then the base rate falls and they just hop off somewhere else. It would pretty much be the death knell for competitive fixed rates because there would be little incentive, either rates go up and they lose out because you are paying them less interest than it costs them to borrow, or rates go down and you just jump ship with no penalty so they never realise the benefit of locking you into a high rate.
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