Can you hear it? A faint scratching, a gentle clucking, a few ruffled feathers? Yes. The chickens are coming home to roost. For six years interest rates have been low and house prices rising strongly. So the kindly old banks have been lending us more and more so we can just about manage to meet the payments on that ‘affordable’ home.
Kindness one: They’ve boosted the amount they’ll lend us from three times earnings to five. Kindness two: If we exaggerate our salary, they’ll wink, smile, and turn a blind eye. Kindness three: If we still can’t afford a home they’ll let us pay just the interest. So that in 25 years we will still owe them as much as we did at the start.
Through their kindnesses, many of us have taken on debts we didn’t think we could afford. Now we can’t. Five interest rates rises in less than a year have pushed up our mortgage repayments on average by about £100 a month. And over the next two years about two million people will find their fixed rate mortgage comes to an end. They will face five interest rate rises at once. Bang.
But when they come to look for the best replacement mortgage they will find a new trick. Low interest rates but humungous ‘arrangement fees’. Upfront charges just to be allowed to be a customer. £1000 is not uncommon. £4000 is not unknown. It’s as if Sainsbury kept down the price of beans by charging you a tenner to walk into the shop. And because most people cannot write a cheque for £1000, the kindly old banks just add it to the loan. So they earn interest on that as well. Over 25 years that can quadruple the fee.
There is a way out. Some of the web comparison sites now let you work out the total cost of the mortgage over five years or over the whole term of the loan. That takes account of all the costs and is a much better guide to the best deal than the headline interest rate. You can sort results on the total cost of borrowing over 5 or 25 years at www.moneyfacts.co.uk website. That will help you find the best deal.
Last year the kindly old banks, who were happy to lend in the good times, repossessed the homes of 17,000 people they had lent too much money to. Nearly three times as many as in 2004.
T-o-o-o-ck tock tock tock.
Yes. They’re roosting nicely. Thanks to your kindness.