Why is the outlook suddenly more gloomy?

The sudden demise of Bear Stearns has revealed that the credit crunch crisis is deeper and more damaging than was previously thought. The emergency takeover of this US bank has caused UK banks to grow even more nervous than before. For the past six months they have been withdrawing mortgage deals. But now they are becoming even less willing to lend. Estate agents report that creditworthy potential homebuyers are being excluded from those loans still on offer. The latest worries have ruled out an early end to this troubling scenario.

Are all borrowers affected?

Securing a home loan is now much harder and more costly for all buyers – even those who have had no problems in the past. The supply of credit has dried up most quickly for first-time buyers, with lenders now channelling their funds into remortgages. So if you have substantial equity in your home, you might have better luck securing a good deal.

After years of good deals on home loans, David Miles, an economist at Morgan Stanley, says that lenders are charging according to what it costs them to borrow – not the base rate. Do not rely on any savings being passed on to you if the Bank of England cuts rates.

What about buy-to-let investors?

Loans for amateur investors are in short supply but more experienced landlords who have built up strong portfolios can more easily get loans to snap up a property. Their enthusiasm is bolstered by rising rents – up 9 per cent last year, according to Hometrack – as more potential buyers wait. Michael Coogan, the director-general of the CML, predicts that buy-to-let could outperform the owner-occupier market. Fionnuala Earley, of Nationwide, counsels against expecting a sell-out in the sector – more bad news for buyers hoping for bargains.

What will be the effect of all this?

Experts say that the biggest casualty will be the number of sales as uncertain homeowners stay put. Richard Donnell, of Hometrack, expects only 1 million transactions this year – a rate that would have people moving once every 25 years, rather than the typical seven years.

But there are disturbing signs that some owners may be soon forced to move: Citizens Advice says this week that the number of inquiries from householders struggling with their loans is up 35 per cent this year.

Will property prices slump?

Signs that prices are taking a hit are increasing: Nationwide says that prices have dropped four months in a row, Hometrack says five. The agents Hamptons International and John D.Wood report prices down 10 per cent in London. And there may be more pain ahead. David Miles, of Morgan Stanley, says that futures traders expect a 14 per cent fall in house prices over the next two years – or 20 per cent in real terms, once inflation has been accounted for.

But is the prime sector powering on?

Not any more. Just months ago expensive homes were confounding the rest of the market, but the latest figures from Savills show that prices dropped 1.5 per cent in the first quarter of this year. The worst hit are homes that most appeal to those in the City, those priced from about £1million to £2 million, which fell 2.7 per cent.

So bargains must be emerging?

Some homes are selling at knock-down prices in auction rooms, particularly unpopular new-build flats. And some owners who need to sell are prepared to take offers. But Rightmove is again reporting a rise in asking prices. All this means is that homes are lingering unsold on the market.

Can we hope for a quick recovery?

Agents had been hoping that this year’s early Easter would revive the property market – and there were some signs in recent Hometrack data of more interest from buyers. Hamptons International said that, after a difficult few months, applicant levels had improved. But observers who had been predicting a relatively quick resolution of the problems seem to be disappointed. David Salvi, of Hurford Salvi Carr, believes that it will be spring 2009 before the market recovers; Liam Bailey, the head of residential research at Knight Frank, believes we may be waiting until 2010 for the turnaround.

Are there any safe havens?

Agents are reporting a return to more traditional markets: houses without obvious flaws will hold their value best. Savills is selling The Priory, a five-bedroom, 18th-century country home, in Denham Village, Buckinghamshire, for £3.5 million (01494 731950). With access to good schools and in a conservation zone just half a mile from the M40 and two miles from the station and Tube, this kind of home has a good chance of holding its value.

Richard Donnell, of Hometrack, says that if he had a deposit of £200,000, he would buy a three-bed home in southeast London for about £350,000. By renovating it to create five bedsits, he could bring in £54,000 in rent – £30,000 more than the unconverted house.

Any other good news?

Developers are finding it tricky to get finance.This means that the number of new homes being built is falling – Hometrack says that the number is down 10per cent in 18 months. This will frustrate the Government’s plans for 3 million new homes by 2020, but a shortage of supply should provide some support for prices.

And Cantor Spreadfair, which reported in December that spreadbetters were predicting UK house prices would slide to an average £169,000 by 2010, now says that their clients are making much more bullish bets, proof that not all signs in the property market are gloomy.

WHAT THE AGENTS SAY

It’s like the shoot-out at the OK Corral as sellers struggle to understand that the days of bullish prices are behind them, and buyers remain determined to get a bargain

ROBERT GODFREY, BIDWELLS, NORTHAMPTON

It is no longer a case of one or two quarters of price falls with values bouncing back shortly after

LUCIAN COOK, DIRECTOR OF RESEARCH, SAVILLS

The jobs market in the City is the new driving force in the property market. We are six months into a downturn and into a spiral that will not be easy to get out of

DAVID SALVI, FOUNDER OF HURFORD SALVI CARR

The rental market will be affected by the events at Bear Stearns. Most American bankers come here for short-term contracts and rent. But there are buyers coming from the East. Every time you lose a couple of Americans there will be an Indian or a Russian to take their place

ED MEAD, DOUGLAS & GORDON, WEST LONDON

There are as many gainers as losers when house prices fall. The quick way that first-time buyers can be helped onto the market is if house prices fall.

DAVID MILES, ECONOMIST, MORGAN STANLEY

London will now underperform the UK this year. We are expecting a fall of 2 per cent across the UK and one of 3 per cent to 3.5 per cent in London

RICHARD SNOOK, ECONOMIST, CENTRE FOR ECONOMIC AND BUSINESS RESEARCH

Interviews by Judith Heywood, Lucy Alexander, Lorna Blackwood and Kasia Maciejowska What Bear Stearns and the credit crunch means for your property – Times Online

Since at least the turn of the century, the twin booms in the housing market and the high street have seen Britain’s seemingly unstoppable army of consumers spending with abandon. In a “What the hell?” culture of “Buy today and worry tomorrow” that has gripped the nation, households have run up mountainous debts that now total £1.4 trillion.

But has that “tomorrow”, and a grim day of reckoning, finally arrived?

Millions are already feeling the squeeze from soaring utility bills, higher taxes and only modest growth in take-home pay. Now, the financial screws on Britain’s households are being turned still tighter as the global credit crunch leads banks and other lenders to ratchet up their rates for remortgaging and for new loans.

Although most people will get by, millions will struggle and hundreds of thousands will suffer financial trauma. And for the unlucky and unwise who have overextended themselves in the good times, economists fear that things may be about to turn truly ugly.

Economists have given warning that the high levels of debt in the UK are actually magnifying the effects of the credit crunch.

Households in the UK owe a total of £1.4 trillion to banks and building societies. More than £225 billion has been piled on to credit cards and personal loans while the remainder has been spent on bricks and mortar, the Bank of England says. Even the start of the credit crunch last year was not enough to stem the credit binge. Credit card borrowing rose by 1.25 per cent last year, while mortgage borrowing rose 10.8 per cent, figures from Experian, the credit reference agency, show.

However, bigger debts mean that households become more sensitive to any change in interest rates. Even the slightest increase can eat up a significant chunk of their weekly income.

In 1998, when the bank base rate was as high as 7.5 per cent, the average household spent 9 per cent of its annual income on paying interest charges on its home loan, credit card, loans and overdraft. Today the base rate is only 5.25 per cent, but households are spending 10 per cent of their income on interest payments.

George Buckley, UK economist for Deutsche Bank, said: “The higher the debt levels, the more sensitive consumers are to changes in interest rates.”

The added difficulty is that while the bank rate has fallen in recent months, borrowers are being forced to pay higher rates for their home loans as lenders pass on the increased costs of borrowing money from other banks. The margin between the bank rate and “swap rates”, the rates banks charge each other, hit 1.2 percentage points last month, Usually this figure is around 0.23 percentage points.

Higher rates on new fixed-rate deals will force the 1.4 million people coming to the end of a fixed-rate deal this year to find an extra £100 a month on average, or £1,200 a year, simply to cover their repayments. In addition, they will have to find about £1,000 to cover the mortgage fee.

Although this will be an uncomfortable addition to the monthly bills, experts point out that many homeowners have built up a cushion of equity in their property which they can draw upon if the bills start to bite. The total equity held in property was £2.8trillion last year, compared with £1.2trillion of mortgage borrowing.

Those who who have had little time to build up equity in their property, or those who have remortgaged to release big slices of equity to fund their spending will be hardest hit. Lenders have withdrawn many deals offering more than 90 per cent of the value of a property, and only nine lenders still offer 100 per cent mortgage deals. As competition between lenders for these types of deals shrinks, the interest rates increase. The number of mortgages on offer has more than halved from about 13,000 in July last year to 6,100 today. As a result, borrowers will have to pay more to secure a new deal, or go onto their lenders’ more expensive standard variable rate.

Recent falls in house prices will only add to their woes. Spiralling house prices in the past decade resulted in many first-time buyers stretching their finances to the limit to buy a home. This, reasoned borrowers and lenders alike, would be fine as interest rates were low and house prices continued to climb, providing a pool of equity that they could use as a “Get out of Jail Free” card.

This worked for borrowers who bought two years ago. They have seen their house’s value soar by 20 per cent, giving them a reasonable cushion. However, people who bought a home with little or no deposit after September last year have limited wiggle room.

Tens of thousands of borrowers have already contacted debt charities for help this year. The number of people seeking help on mortgage arrears soared by more than a third in the first two months of the year, Citizens Advice said yesterday. About 144,000 borrowers were between three and six months in arrears with mortgage payments last year, figures from the Council of Mortgage Lenders show.

Another debt charity said that the number of people becoming insolvent is set to rise this year as Britons try to keep up with the spiralling cost of living. Vince Cable, the deputy leader of the Liberal Democrats, has given warning of a “very real possibility of mass bankruptcy and repossession across the country”.

More borrowers could be thrown into difficulties by the abrupt withdrawal of credit. Last month, Egg, the online bank, cancelled the credit cards of 161,000 customers with little warning. Those relying on juggling their debts between credit cards will face an uphill struggle as lenders become more picky about their customers. They may face the prospect of actually repaying the debt or accepting punitive interest rates on their borrowings.

A spike in insolvencies is bad news for the economy, but a potentially more damaging side-effect of the credit crunch is the slowdown in spending among consumers as they strive to meet their increased monthly repayments. The stalling housing market is likely to exacerbate this. Jonathan Loynes, UK economist for Capital Economics, said: “The housing market oils the wheels of consumer expenditure as homeowners buy goods for their new houses.”

Consumer spending accounts for two thirds of economic activity, and economists have sounded alarm that any slowdown in this area and the subsequent drop in demand could prompt redundancies. Mr Loynes said: “A cut-back in employment could then cause a further slowdown in spending. There is a real danger that these things feed back into themselves.”

Howard Archer, of Global Insight, said: “The longer the crisis goes on, the more people will be sucked into it.”

Debtor nation

— The average credit card holder has a balance of £1,856 on their cards, according to Uswitch, the price comparison website

— The average outstanding mortgage is £100,406; the average first-time buyer borrows £117,999 and spends 20 per cent of their income on mortgage interest payments

— Consumers in Northern Ireland increased their borrowing by nearly a quarter over the past 12 months, the biggest increase in the UK

— Borrowers in Aldershot, Dartford, and Ilford have reined in their spending most, according to Experian, the credit reference agency

— Nearly 25,000 people became insolvent between October and December last year, 16.4 per cent fewer than the same period in 2006. The major reason for that was a spat behind the scenes between lenders and companies offering Individual Voluntary Arrangements (IVAs) – schemes that allow debtors to pay off only a portion of their debts. Borrowers who take out an IVA must repay at least 35 per cent of their debt

— Lenders refused to accept many IVA applications, saying that IVA firms were offering payments that were too small and taking high fees for themselves. The dispute was resolved last month, so experts expect the number of IVAs to soar in the coming months

Credit crisis: the cracks are opening in UK’s debt mountain – Times Online
The buy today and worry tomorrow culture that has gripped the nation in recent years threatens to make UK households particularly sensitive to the global credit crisis

ALISTAIR DARLING has been accused of failing Scottish homeowners in his first Budget because he refused to increase the thresholds for stamp duty in line with property inflation.

Bank of Scotland estimates that more than half (52%) of home buyers in Scotland paid at least 1% stamp duty in 2006, and the typical stamp duty bill is £1449. But the figure is much higher in property hotspots. In the City of Edinburgh, for example, 72% of home sales were above the 1% stamp duty threshold, followed by East Renfrewshire (70%) and East Dunbartonshire (70%).

More Scottish homebuyers are also stung for the higher rates of stamp duty, with almost one in 10 Scottish home sales over the higher threshold in 2006.

If a property is worth less than £125,000, there is no stamp duty to pay. But on homes worth more than £125,000, buyers have to fork out 1% of the entire price. The duty rises to 3% of the total house price on properties worth more than £250,000, and to 4% on a house costing more than £500,000. So if you are buying at the very top end, you could be slapped with a bill of more than £20,000.

There are early signs of a slowdown in some parts of the Scottish property market, but prices still rose at an annual rate of 13.1%, according to the latest figures from the Bank of Scotland. The typical house price is now £144,897, although the average property in Inverurie, Edinburgh, Aberdeen and Helensburgh is more than £200,000, dragging more people into the stamp duty net.

Campaigners have long called on the government to raise the stamp duty thresholds to keep pace with property inflation. If the lowest threshold had gone up in line with UK house price inflation since its introduction in March 1993, it would now stand at £191,000. The higher stamp duty thresholds were introduced in July 1997, so they would now stand at £720,000 and £1.4 million.

But the government has so far resisted – and it resisted again in the Budget. A glance at the Treasury figures perhaps explains why. Total stamp duty revenue from UK residential property sales rose by 40% in 2006-07 to a record £6.4 billion. Over the past five years annual residential stamp duty revenue has more than doubled, with a 140% rise from £2.7bn in 2001-02. Estimates of residential stamp duty revenue for 2007-08, based on government projections in the pre-Budget report, are for a 14% rise to £7.3bn, followed by a 4% rise in 2008-09 to £7.6bn.

Ron Smith, chief executive of the Edinburgh Solicitors Property Centre (ESPC), said: “The decision to again freeze the lower threshold for stamp duty at £125,000 means a record number of buyers are likely to be liable for the tax again this year. This will come as a particular blow to first-time buyers, who are already finding it difficult to find an affordable way on to the property ladder, as the simple fact is that changes in stamp duty have not reflected house price inflation in recent years.”

The number of first-time buyers in Scotland dropped to a record low of 30,000 in 2007, the lowest annual number since records began in 1988. The average house price paid by a Scottish first-time buyer has also more than doubled since 2002 to £123,213, which is only just below the 1% stamp duty threshold.

David Carmichael, area director for the Scottish offices of Savills Private Finance, a mortgage broker, said: “The number of first-time buyers who come into our offices has dropped from about 40% five years ago to about 8% today. But the Budget was a disappointment. The chancellor has done nothing to help struggling home buyers get a foot on the property ladder.”

Darling tried to appease home buyers with measures to help key workers and an attempt to encourage lenders to develop mortgages fixed for 25 years or more. But they met with a cool reception.

Michael Coogan, director general of the Council of Mortgage Lenders, said: “The modest announcements relating to shared equity schemes for key worker first-time buyers, while potentially welcome, are unlikely to provide any short-term relief to affordability and entry costs for first-time buyers in the housing market.”

But what of long-term fixed rates? The government thinks long-term fixes would shield borrowers from the ups and downs of interest rates and bring stability to the mortgage market. But the big snag with the loans is the early repayment charge. Lenders typically slap you with a penalty if you want to redeem the loan early, and early often means in less than 10 years. Carmichael is not a fan: “How many people know what they will be doing 10 or 20 years from now, particularly young people? If the chancellor seriously thinks that long-term fixed rates will help struggling home buyers, he has got it badly wrong.”

March 10 (Bloomberg) — Northern Rock Plc, nationalized by the U.K. government last month, will stop selling subprime mortgages in Britain.

The bank will stop selling the loans today, though applications submitted before will be processed, the Newcastle, England-based lender said in a statement today.

Northern Rock, bailed out by the Bank of England after it ran out of funds for new loans in September, began selling subprime and “near prime” home loans last year on behalf of Southern Pacific Mortgage Ltd., which was responsible for funding the loans and managing the repayments, it said.

Bloomberg.com: U.K. & Ireland
Northern Rock Pulls Out of Subprime Mortgage Market in U.K.

Britain’s financial regulator and its central bank must develop a better plan for warning banks and investors of high risks, after overseeing the loss of billions of pounds in the global credit crisis, a damning report by MPs will recommend today.

In its second report on last year’s liquidity crunch, the Commons Treasury Select Committee criticises the Financial Services Authority (FSA) and the Bank of England for failing to ensure that financial companies were prepared for the worldwide closure of credit markets. The Government must respond to the charges within two months.

Although the FSA and the Bank gave warning many times that banks were lending too much too easily, they failed to follow up their words with action, the cross-party committee says. John McFall, the chairman, says: “It is clear that many market participants failed to heed warnings about a serious underpricing of risk and the potential for impaired liquidity in financial markets in the mistaken belief that the good times would go on and on.”

The committee will recommend that in future the regulator and the bank should write a letter to financial companies highlighting two or three key risks. The MPs believe that the two institutions should then seek confirmation that the companies have considered the risks and publish a commentary on the responses.

Banks and investors, such as pension and hedge funds, wrote down billions of dollars last year after the value of their investments in asset-backed securities plunged because of a wave of defaults on the underlying American sub-prime mortgages. The banks, investors and credit-ratings agencies that rated the securities also face heavy criticism by the MPs.

Mr McFall says that the “best and brightest at our top investment banks have expended great energy designing ludicrously complex financial instruments, which you need a Nobel Prize in physics to understand”.

The committee has found that top bank bosses did not understand the products sold by their fixed-income teams and that the innovation of cutting securities into risk tranches had made the products even more complicated. If banks do not attempt to make their products less opaque, they should be regulated more heavily, the report says.

The MPs claim that the banks’ development of an “originate and distribute” model – in which they sold packages of mortgages on to investors, who liked them because of the high returns they offered – meant that the banks paid less attention to the credit-worthiness of their home-loan customers. Meanwhile, investors relied too heavily on the ratings agencies to assess the risks of their investments.

Mr McFall accuses investors of engaging in a “bout of collective madness”. “Unfortunately, you cannot regulate against stupidity,” he says.

The ratings agencies did not emerge smelling of roses, either, the chairman says. The report states that the agencies had to prove that the lucrative advisory business that they received from the banks did not affect the credit ratings that they gave to the banks’ products. “We need to have a serious debate about a root-and-branch reform of their business model to tackle perceived ‘conflicts of interest’,” Mr McFall says. “If the agencies procrastinate on reform, then we will have to seriously consider whether new regulation is necessary.” The FSA said that it was considering the report. Banking sources accused the committee of “taking a very populist bent”. “This stuff has all been widely commented on, there’s nothing new here and banks have been working on these improvements for quite a while,” a source said.

Those that understand the financial market strongly advise that the endowment mortgage should be replaced with repayment mortgage. Otherwise the risk is there that at end of the tenure the individual will be saddled with huge debts. The two main shortfalls of endowment mortgage suffers from are – shortfall and wrong selling. Generally the public is not aware that the endowment mortgage might not prove to be profitable – fail to reach the expected goal. Thus anybody who has been sold the endowment mortgage without being made aware of the risk involved in the present day market of bulls and bears has been wrongly sold the financial tool.

Mortgage is a type of secured loan given against the pledging of the property as collateral. In a re-payment mortgage no matter what the weather is in the stock market, there is no fear of losing the valuable asset, provided of course one is current in payment. The monthly amount covers both the loan amount as well as the interest.

On the other hand endowment mortgage often fails to gain points and will prove to more expensive in the long run. If one stops paying the premium of endowment mortgage during the initial years the cash-in-value of endowment being very low it will tantamount to losing all that has been paid if one decides to sell at this juncture. Thus endowment mortgages are not flexible. But with re-payment mortgage the question of deficit does not arise.

Endowment mortgages like other mortgages run into 20 to 25 years. During all that time it is not possible to keep detailed track of the waves in the stock market. With endowment mortgages there is a constant fear factor attached. While with re-payment mortgage one has a peace of mind. Apply here for getting a quote…

Competition in the re-mortgage market is making things better for the applicants. Lenders are offering attractive terms like free valuation and low or even nil legal fees to tempt one to make the change. Some of the lenders are offering 100% re-mortgage scheme on special products through mortgage brokers. The fundamentals of re-mortgaging are paying off the old one by going for a new one while keeping the same property as security. What attracts the borrowers is that the new deal offers less interest from a different lender. Thus re-mortgaging is ideal for shuffling old financial blues and giving it a shake up to make it more viable and affordable.

There are many things that need urgent attention like making changes in the kitchen, going for another extension or purchasing a car or another house. The equity that builds up over time is used by many to invest in business or in a second vacation house. Another driving force is the need for reducing monthly payments and or to consolidate debts. It may sound too good to be true but in reality it is true. Browsing over the net the applicant will come across a whole market buzzing with activity enabling comparison before deciding on the best lender.

The added benefit is that even those with adverse credit ratings can apply and benefit from 100% re-mortgage. The lender reaches out to all credit types. All that is required is detailing the personal requirements. Free advice and quotes are given – none of which are obligatory.

The borrower should know how much has to be repaid each month. Usually this area is gray with the borrower being ignorant about market rates and how much of the loan is being repaid. Calling or going online can clear up all doubts. Detailed information is just a click away.

100% re-mortgage is a financial measure that is taken. This is done on the existing mortgage and involves the existing property. There are many financial houses and recognized lenders who are in this line of business.

The rise of applicants for reverse mortgage has been steady. From an increase of 112% in 2003 mortgage numbers fell to 109% in 2004 but of these 90% were for HCEM or Home Equity Conversion Mortgage. This is the result of an awareness programme initiated by the government to make the seniors conscious about the advantages of reverse mortgage.

During the debuting years the Americans were wary about it and thought it to be an act of retrogression. It was hard to believe that everything was above board in a mortgage that brought income. Lenders too fanned the flames of doubt because the scheme did not have takings for them – especially in the FHA insured HECM plan. But federals have given priority to the matter of welfare for the seniors. Innumerable seminars and workshops have been held to spread a positive message.

The high loan limits of Fannie Mae’s Home Keeper Loan have been increased from $333,700 to $359,650 for the regions of Alaska, US Virgin Islands and Hawaii. Simultaneously HECM has also raised the limits from $290,319 to $312,896 for certain areas. Despite a barrage of criticism the lower limit has also been raised to $172,632. However the idea of drawing in house owners with less equity is self-defeating because of the undue risk factor.

This reverse mortgage scheme targets those over 62, having no source of income and spending life struggling with medical bills. This loan is unique in that it does not scrutinize credit ratings or income statements. All that is required to qualify for this loan is to possess a property that is free from lien. The loan amount will depend on the current equity value of the house. The bonus point is that instead of making monthly payments the person gets a monthly income. The amount can be used for any purpose and what is more – it is free from tax obligations. With each passing year the reverse mortgage scheme is set to be increasingly popular.

Bad credit re-mortgage loans help the borrower to move the asset from one mortgage to a second one that is charging less interest. The mortgage might become uncomfortable because of an increase in the current financial market rates. There might be other personal reasons that makes it impossible to repay as per previous schedule. Problems might be aggravated by bad credit history as rates of interest in this zone are much higher.

In such a situation the borrower can transfer this asset to benefit from bad credit re-mortgage loans. These can be got from lenders who will be offering lower rates of interest than the previous one. With this shift the monthly commitment will go down allowing the borrower to breathe and get his or her finances back on the rails.

The bad credit re-mortgage loan can be used for many purposes – renovation of the house, purchase of a vehicle, consolidation of debt and you name it The borrower can meet any type of financial obligation with the amount got from re-mortgage.

The borrower however should consider certain expenses connected with bad credit re-mortgage loans like – penalties for early redemption, re-valuation of the property, fees of the solicitor, incidental office and conveyance expenses etc. The suggestion therefore is that the borrower should take the help of financial professionals to assess financial position before finalizing the deal. These loans are available on the Internet. A thorough research will offer good results as the borrower will be able to compare and contrast the various offers and opt for the best and lowest. Bad credit re-mortgage loans holds out new hope in troubled times.

In a fixed rate mortgage the interest rate remains fixed to a certain level. The borrower is protected from market increases.

But let us look at the other side of the coin. In the market the interest might decrease and not increase. In that situation the borrower is at a disadvantage because the rate is fixed and cannot go down. There is a sense of being cheated. Here the option is to seek refinancing and go for another mortgage. Otherwise the borrower will go on paying more than what is actually owed.

Re-mortgaging might not always turn out to be the perfect solution. Lenders re-mortgage only when there is the possibility of some gain. The borrower will have to accept the terms laid down by the lender. Thus either way the borrower loses – continuing with the old rate or opting for a re-mortgage.

It is well to note that the fixed rate of interest is not fixed during the entire tenure of the loan. It is fixed for the first few years. After that the market rates come into play and the borrower has to pay accordingly.

There are someother options to manage the interest rise. The variable interest rate fluctuates and does not give peace of mind but in a capped rate good points of both are incorporated. The interest rate is allowed a free fall but it is not allowed to rise after a certain level. This gives some sense of security to the borrowers. But the capped period is limited from one to five years.

Another option is the discount rate – it means that the lender allows a reduction for a limited period of time. These are usually given to those who have borrowed for the first time. The idea is not to overburden the novice with interest from day one. Refinancing can be done after the end of the discount period. There is the tracker rate linked to the base rate and allows for correct market readings.