Problems of Low Mortgage Interest Rates

Do you think the low interest rates currently available are good news?
The answer may well be yes and no!

Problems for Lenders

• The European Union are preparing to mandate another series of stress test on banks and lenders.
• With the exposure to Japan, pressure from the Yen and the lingering prime mortgage hangover will the British and European banks pass these tests.
• Are lenders margins and balance sheets being adequately rebuilt  to  fund  new debt and mortgage borrowing.
• Rates are below the natural and sustainable levels and will rise.
• Can the banks withstand a significant fall in property values that may follow a jump in interest rates.
• Are savers content to remain on perversely low levels of return.
• Lord Turners report on the FSA warns ‘there is no silver bullet’ on market reform we will have to adapt to developments.

Problems for Borrowers

• Cheap floating, tracker or variable interest rates is good so long as it lasts.
• Any saving on cost should be usefully redeployed, not squandered.
• High loan to value debt seems affordable but when interest rates rise, as they surely must, the debt burden for some families will be too much.
• Rate rises will depress the value of houses as repossessions increase. This could be as bad as a further 20% fall in some sectors of the market.
• The squeeze is on for middle income families and the government policy and the next budget may add further woes.
• Lenders try to make money in ways other than interest rates eg; arrangement fees, exit penalties, short discount periods, reversion rates,  valuation fees etc.

The old sore ‘ If it ain’t broke don’t fix it’ may need replacing with ‘It is broke and we can’t fix it’ or at least it will take four years or more to get back to the same position as last year.