Monthly Archives August 2008

Tiered Mortgage Rates Not Helping

Quite a few mortgage lenders have started offering tiered mortgage rates. Preferential rates are available to people with low ‘loan-to-value’ mortgages.

eg. Your house is worth £200,000 & your mortgage is £150,000.

150,000/200,000 x 100 = 75%

The mortgage is at 75% loan-to-value.

People starting out on the property ladder (all 3 of them!) may only have a 10% deposit which means their mortgage will be at 90% loan-to-value.

Some lenders are now offering cheaper deals to people with mortgages below 75% loan-to-value with some restricting their best rates to 60% loan-to-value.

Woolwich has just announced a market leading fixed rate offer of 5.69% for 3 years (available from 29th Aug 08) if the loan-to-value is 60% or less while the rates for people who’s mortgage is above 60% LTV start at 6.19%

On a mortgage of £150,000 the difference in interest charged per month is £62.50.

Go above 80% LTV and their best rate is 6.49% which adds a further £37.50 to the monthly repayment or £100 compared to the rate of 5.69%.

So people trying to get on the property ladder are not only experiencing uncertain times regarding house price fluctuations but they are also charged more for their mortgage by some lenders. Which is the last thing people need when learning to budget and pay for the running of a home for the first time.

Bank of England Historical Base Rate – See the Rates & Trends of the Past

There are numerous places on the internet where historical Base Rate information can be found but I recently discovered a page on a site that shows the Bank of England base rate trends since 1997 in a nice and simple rate graph.

Did you know in 1998 rates were as high as 7.5%?

…and in 2002 rates stayed constant at 4% for the whole year?

…and the lowest rate recorded since 1997 was 3.5% for a few months in the summer of 2003?

Well, neither did I, until I found the following page:

View Historical Base Rate Trends

The only odd thing about it is the timeline runs from right to left! Apart from that it’s so easy to see the trends of the past and how rates have changed over the last 10.5 years.

And if that wasn’t enough you can even download a spreadsheet showing base rate trends since 1964!

Looking back on the spreadsheet we’ve actually had a pretty good stable run of things and all this moaning about rates now being high and all the doom and gloom can be put in perspective and we really should stop whinging!!

At the start of 1977 the rate was a staggering 14%. It gradually dropped over the year to a low of 5.5% in October but by October 1978 it was all the way back up to 12.5%.

Between July and October when the rate was just 3.5% it was actually the lowest it had been since 1955!! 

What was the rate when you were born? For me it was 12.5%!

Why Do Eggs Cost More?

Recently eggs have increased in price in some supermarkets and I initially had some difficulty understanding why.

If all our eggs were imported I could understand because the cost of fuel involved in transporting them would surely have an effect but when the majority of eggs sold in supermarkets supposedly come from local farms to support local business and economy it didn’t really make sense.

But, unlike crops, chickens need to eat food in order to produce eggs and what kind of food do they eat? Wheat and corn based feed. Two of the main types of food that have been experiencing reduced levels of production due to climate change.

But climate change is not the key here. We can’t just go pointing a finger once more at the state of the environment when in fact the major culprit of the rising cost of food is global demand.

Much of our food is produced overseas and imported because it’s often cheaper to do so than produce or grow it ourselves.

As other countries economies improve and the people have more money available, they also begin to import food from overseas putting a strain on the supply. This drives up prices.

FT.com has some really good articles and news clips that explain in simple terms why there is a global shortage and increased demand for certain types of foodstuff.

Why are Food Prices Rising

Having spent some time reading and listening it greatly concerns me that there is a major global increase in the consumption of dairy products (milk, cheese, butter).

We as a planet are already raping the rainforests and driving far too many species to extinction in order to graze cattle and produce the main causes of obesity. And now at great cost the rest of the world is also going to get fat.

I hate the term ‘consumer’ it conjours up images in my mind of greed, laziness and waste but it’s a sad and accurate label for the majority of the human race.

Mortgage Rates Creep Further South

More news today as mortgage lenders continue to lower rates. Abbey this time announcing a reduction of 0.1% on certain Tracker products and Halifax announcing this week a reduction of up t 0.38% on one of their 2 year fixed offers. (Oh, and not in the news yet, Nationwide are going to follow suit on the 8th bringing their 2 and 5 year fixed rate offers below 6%)

So rates are creeping down and so they should!

To sum things up, Northern Rock was at one point lending MORE that 100% of the value of a property. This was fine at the time of rapid house price increases.

In America, where this had also been happening, consumers started to experience difficulty making payments on mortgages which were far in excess of their true affordability range.

Lenders were practically giving money away because house prices were climbing and they’d be able to realise their security and maybe even make a profit if things went tits up.

But when people did start to miss payments , all of a sudden the ‘risk’ was much closer to home.

Lenders then started to scrutinize themselves and look at ways of making their business appear less risky.

This is why we now see lenders saving their best rates for people with lower ‘loan-to-value’ mortgages in an attempt to deter ‘higher risk’ borrowers.

If you bought a house worth £150,000 and you owe above 75% of the value (£112,501 and upwards), if a property slump knocks of 30% of the value, you will owe more than the property is worth (negative equity). If you then decide to simply walk away, the lender would be left with a house that is worth less than they have outstanding on the debt.

So lenders want less risky business on their books at the moment to make themselves appear stable and worthy of continual funding.

Northern Rock had already over-exposed themselves and with way too much high risk business on it’s books, funding all but dried up (’til the Government stepped in but that’s another story).

So due to ‘risky business’ there has been a reduction in ‘faith’ and consequently less funding has been available in the UK mortgage market.

There has still been a demand for funding and when demand outstrips supply the price ALWAYS goes up.

Consequently rates shot up and consumers felt the pinch.

Now however, lenders have taken steps to reduce their exposure to risk and gradually more money is being made available which is starting to bring rates down again.