With interest rates currently at highs not seen since the early 1990s, those who accepted fixed-rate mortgage offers in recent years now appear to have been spoiled by the low rates offered in recent years. The Royal Institution for Chartered Surveyors (RICS) estimates that the party is about to end for 1.5 million owners, whose fixed-rate offers will end in 2008.
Those who have to take out new mortgages will find themselves paying substantially more than they have been paying in recent years. The best five-year fixed rates available today are above 5.5%, but in 2003 it was possible to get an offer of 3.75% or sometimes even less. So today’s rates are up to 35% higher than five years ago, and this will cause a significant jump in your monthly payments. This is because the cost of short-term borrowing has skyrocketed in international money markets. Also, banks and building societies are now adopting much stricter lending rules when it comes to mortgages, loans and credit cards.
Most lenders have now become incredibly picky about who they lend to and how much they’re willing to fork over. If you don’t have a perfectly clean credit history, you may find it difficult to secure a competitive deal, or you may simply end up paying more. Many lenders will only offer people they perceive to be “higher risk” borrowers their highest variable rate offers. And you can forget about extremely inflated income loans altogether. The days of 125% mortgages are over. Well, for now at least.
Market analysts like RICS are concerned that this could have a seriously detrimental impact on the entire housing market. These experts say that the signs of a collapse are already visible in some sectors. That’s because many who scrambled to get a bigger mortgage five years ago are now finding that the rising payment rates of today’s offerings are beyond their original budget.
The Royal Institution of Chartered Surveyors says it has seen the number of foreclosed properties rise by around 20% in the past year as homeowners have struggled to pay their mortgages following last year’s interest rate hikes and conditions stricter refinancing This worrying trend is forecast to continue with the number of foreclosures potentially increasing by another 50% in 2008.
So if you’re facing a remortgage situation, what can you do? The biggest problem with fixed-rate mortgages is that lenders know they’re popular because they offer long-term security, which is valuable in this uncertain climate. This has meant that one of the biggest drawbacks with the new credit crunch “era” of fixed-rate mortgages, other than the fact that bids will now be significantly higher than they were a few years ago, is that the fees associated with them will be They have become ridiculously high. .
According to research by Moneyfacts.co.uk, the average mortgage origination fee has almost doubled over the last two years. Mortgage fees of £1,000, or even up to 2% of the amount borrowed, are now common and significantly increase the cost of the loan. In particular, when the installment is added to the mortgage balance and is paid in 20 years or more.
This makes long-term offers more attractive. In the past it has been impossible to find these types of fixed-rate deals for more than five years, but times are changing. Chancellor Alistair Darling, in his first budget speech earlier this month, raised the possibility of a shift to 10-, 20- and even 25-year fixed-rate mortgages as a way to create a sense of stability and certainty in the real estate market.
It’s still early days for these deals and many are attracting customers, as in the case of Cheshire Building Society’s 25-year fixed-rate plan, with a four-year exit clause that’s penalty-free. These agreements are intended to inspire confidence in the market and, as such, should be more competitive than comparative short-term plans. If you need to remortgage, these schemes could save you a small fortune in changing rates.