A long time ago, in an economy far away in our memories, there was no credit crunch.Â
Think back, if you can bear it, all the way to December 2006.Â The base rate of interest was 5 per cent.Â Since then, the Bank of England has sat and cogitated, and changed interest rates five times, so that today, the base rate is â€¦ 5 per cent.Â Â Â Thatâ€™s right, it went up, then it went down, and now we are back to the level we started at.
But of course these days, in their credit crunch era, interest rates are determined by other factors â€“Â not just the whims and wiles of the wise men and women who make up the Bank of England Monetary Policy Committee.
According to research from Defaqto,Â that’s us, in December 2006 a five year fixed rate mortgage typically carried an interest rate of 5.42 per cent.Â By contrast, this June the rate was more like 6.71 per cent.Â Meanwhile, the arrangement fee has soared from an average of Â£622.90 to Â£823.19.Â
Here are a couple more examples for you to take a gander at:
Fixed rate mortgages
|Dec 2006||June 2008|
|2 year fixed rate||5.42%||6.71%|
|2 year fixed rate arrangement fee||Â£622.90||Â£823.19|
|2 year fixed rate maximum Loan-to-Value||90.13%||83.47%|
|Â Discount rate mortgages||Â||Â|
|Â||Dec 2006||June 2008|
|2 year discount rate||5.30%||6.23%|
|2 year discount rate arrangement fee||Â£552.53||Â£806.04|
|2 year discount rate maximum Loan-to-Value||89.16%||82.22%|
Â Of course, the credit crunch also meansÂ fewer deals.Â In December 2006, Defaqto found that there were 465 discount mortgage products.Â In June of 2007 the number had increasedÂ to 570.Â Now, there are justÂ 112. Itâ€™s a similar story, although less extreme,Â withÂ fixed rate mortgages.Â Â Â In December 2006 there were 917 fixed rate mortgages, in June 2007 1,355, but now just 841.
David Black, Principal Consultant of Banking for Defaqto.com says: â€œThe mortgage world is a completely different place from eighteen months ago as the wholesale funding model has largely dried up. Weâ€™ve seen low volumes of business accompanied by increases in rates and arrangement fees and a reduction in the amount that people can borrow.
â€œItâ€™s astonishing to note that the average arrangement fee charged by 3 year base rate tracker mortgages has increased by 121%. In terms of rate increases the most significant increase has occurred in the two year fixed rate market where the average rate charged has increased from 5.42% eighteen months ago to 6.71% now.Â The worst hit part of the industry has been the sub prime sector but thereâ€™s also been a lot of dissatisfaction amongst the mortgage broking community with provider distribution channel issues and dual pricing.
â€œBest buy mortgages often arenâ€™t staying on the shelf for very long and this means that speed really is of the essence if you see a mortgage deal that you want.â€
Â Mr Black added “mortgage borrowers are increasingly turning their backs on new 2 year fixed rate mortgages in favour of 3 & 5 year deals. This is because Â theyâ€™ve witnessed the rapid increases in rates recently and want a longer deal and they donâ€™t want to fork out the fairly substantial costs incurred in remortgaging every 2 years.”
© Investment & Business News 2013