When the banks were on the verge failing the pinstriped cockroaches headed for the hills. Now they’re back and they’ve developed a taste for bricks and mortar.
Logically, when interest rates drop home owners let out a huge cheer (or sigh of relief, depending on your financial situation). For the time being, the whooping and cries of jubilation have been muted. Why? The banks don’t actually want to lend you any money.
Desperate to protect their profit margins, the banks have been slowly but surely cranking up the heat. Mortgage costs are going up and lenders are desperate not to be seen as having the best offer on the market. I’d agree with you that, from out perspective, this is lunacy but the financial institutions have a reason.
By raising interest rates the banks and building societies ensure that they are no longer the competitive lender. This reason alone should prevent them from being overrun by desperate home buyers.
But this leads to a vicious circle of rate rises. Once a bank becomes the most competitive lender on the market it quickly moves to raise rates and deter buyers. This means the next bank down the ladder becomes the place to apply to for a loan. Guess what happens?
On top of these underhand tactics, the risk averse banks are demanding ever larger deposits from home owners. A 40% deposit is now the average required by many mortgage lenders. If you don’t have the cash you don’t move up the chain.
If the antics of the pinstriped cockroaches wasn’t enough, the UK housing market has been battered. The financial in Europe has, and will continue to, hurt house prices here.
On top of this, the dire situation on the continent is pushing UK house prices down and making risk-averse banks demand larger deposits from buyers.
So why, when the current Bank of England base rate is sitting at a record low of 0.5%, are the bank playing God with your mortgage? Simple: they made lots of mistakes, the tax payer bailed them out and now financial organisations want to protect their profit margins.
If you thought it was hard enough getting on to the property ladder then spare a thought of existing home owners.
Unless they’ve recently opted for a fixed-rate mortgage, many borrowers are in for a nasty shock come renewal time.
In the last week, Britain’s biggest mortgage lender, the Halifax hiked the cost interest on their fixed-rate mortgages by 0.3%. That adds and additional £54 a month to a £300,000 mortgage. At a time when most people are already struggling you can understand why home owners are getting very nervous.
But what about anyone trying to get onto the housing ladder? Sadly, they’re not fairing any better. Aside from the average 40% deposit that buyers now need, the creeping interest rates are going to hurt.
Tracker mortgages have been a popular option for many home owners over the years but the banks and building societies have raising the rates on these as well. Some lenders have clauses that ensure their rates remain as high as 3.99% above base rate. This means that even if the base interest rate remains at 0.5% for the next few years you’ll still be paying 3.49%. desperate to protect themselves.
Why The Charge To Punish Home Owners?
The tax payers money that the banks received was enough to protect them. Years of investments in weak European countries has finally come home to roost. Many of the banks are exposed to some potentially crippling debts.
So, what’s the easiest thing for them to do? That’s right, grab some more money from you and I. They’ve had your taxes now all they’re asking is that you take your mortgage and go somewhere else.
I’m off to stamp on some cockroaches before they eat my mortgage paperwork!