US vs UK mortgage

In USA, Fixed rate mortgages for 20-30 years are most popular .
What people do here in UK? Do you like variable of fixed and why ?
Thanks
kal

I never had a mortgage in the USA. Our current mortage is fixed for 2 years. I've never actually heard of a mortgage being fixed for 20-30 years. That could be a disaster!

Around 20 months we'll shop around for a new mortgage. It seems to be what people do here.

Most decent mortgages in the U.S. are fixed for 20-30 years.  If you have a good credit rating.  The average rate right now is 6.06%, six months ago you could have gotten a mortgage for 5.72%. 

I prefer it, you can always remortgage when rates are lower, but it means you don't have to worry about rates rising in two years and suddenly not being able to afford your house when it is time to renew. 

Around 20 months we'll shop around for a new mortgage. It seems to be what people do here.

What is the cost of  new mortgage ?
kal

What is the cost of  new mortgage ?
kal

I think ours was about £650-£700 but I can't recall exactly. We shopped around quite a bit.

We just got a 5 year fixed rate, which seems to be the longest out there.  We got a good rate, so on the flip side the fees were higher (GBP 1999).  But the overall cost of lending was less than the mortgage with a GBP 999 fee.  We also get about 450 back in refunds etc.  However, if you leave the mortgage altogether during the 5 year period the fees are 3% of the total amount loaned (from the beginning).  Pretty steep and definitely a consideration for us.  We can take the mortgage with us if we move to another UK property, but if we were to move back to the US within 5 years - we would be screwed.  We would leave as a rental property, but it would be tough not to get our principle out of the property.

The last decade I have done a 2 year fixed switching to variable and then re-mortgage to a 1 year fixed and then variable. It certainly pays to re-mortgage every few years. Sort of funny though I have been with the same bank for all these changes. Not sure if they were the best but they always did a deal I was happy with.

A fixed 20 year mortgage would scare the pikey out of me.

A fixed 20 year mortgage would scare the pikey out of me.

Why that ? 20 years is not commitment

My cousin is having 5.65 fixed rate for 30 years with options like
   * the ability to prepay principal (or capital) early without penalty.
   * early payoff of the entire loan amount through refinancing without penalty.
   * make early payment re reduce the loan


It  is peace of mind and you dont have to shop for new mortgage every year and pay a fee.
with 2 years  you must shop every either year, pay the fee . The banks are
the winner in all cases..

UK banks are locking  Britons into long term deal for long-term fixed-rate mortgage, and that is a bad deal. and UK prices are a joke.


Can you get better deal than that ?

Kal

My cousin is having 5.65 fixed rate for 30 years with options like
   * the ability to prepay principal (or capital) early without penalty.
   * early payoff of the entire loan amount through refinancing without penalty.
   * make early payment re reduce the loan

That's the thing...UK mortgages don't offer the early repayment of the entire loan.  The one we got has a charge of 3% on the ORIGINAL balance of the loan.  For a house in london...that's could easily be £15000.

As a financially conservative person, I 100% agree that a 20-30 year fixed with all those get out clauses would be great.  Sadly, I don't think  the UK mortgage market works like that.  It's short term fixed, with variable after that (or refinance).

That is one thing that shocked me when I got here and we, foolishly, looked at houses.  Everyone I know in the U.S., except for my one friend who has the worst.credit.ever, got a 30 fixed with no penalty for early payments and a low interest rate.

I couldn't believe the loans here, but since we will never afford a house, I guess I won;t have to worry.   

Except I did buy a lottery ticket this weekend, time to go check the numbers.

Certainly mortgages are much more confusing in the UK than in the US.  In the US I always did 30-year or 15-year fixed with no prepayment fees.  In the US fixed means FIXED, in the UK fixed means fixed for some relatively short period.

Here in the UK it's hard to find the best deal, beware of some tricks like the low interest rate for 2 years followed by a terrible rate for 2 years and you're locked in for 4 years so overall you lose.  ING seemed to have the least confusing and best overall rate when I was looking:  fees were low and although it was variable it didn't increase to some exorbitant amount over time.  However, I got lucky and found a great deal on a 2-year fixed (4.94%) in a Sunday paper so keep an eye out for these (the deal only lasted 1-day, they took it off the market on Tuesday after the Sunday paper came out!)

I have an Excel spreadsheet I created to compare deals, I don't mind sharing with people but would need to explain it to whoever uses it.

hi

As discussed, a main difference between UK and US mortgages is the fact fixed terms of 20 or 25 or 30 years is very common there and not so here. The UK's 'mortgage' industry really took off in the years following the 1989 crash - more so in the early-mid 90's really as the opening up of the regulations allowed competition and thus a much more varied availability of different types of mortgages.

Seeing as property prices kept rising say after 1996 and throughout 98- till even through the slump of the dot.com bubble burst more and more types of mortgages became available and the 'fixed' rate types were seen to be a good 'introduction' to getting a mortgage.

The fallout of those getting fixed rate deals a couple of years ago is due to hit soon - they 'fixed' when the base rate of interest was 'historically' low - and their deals end soon and there's been 5 increases (i think) of interest rates since - analysts are warning many of those people wont be able to afford re-mortgaging at the current rates - and a 'mini' version of the US sub prime fallout is going to occur here - potentially leading to the start of the much required 'correction?'

I personally went for a 'Tracker' mortgage - means I'll 'always' pay base rate +1% in interest. It was great when the rates were being cut, I saw a good £70 reduction in my monthly mortgage payments, and not so good of course when they inceased! I now pay a good £85 more per month compared to when I took out my mortgage!

Good thing is though, I 'always' know where I stand with payments, if /when it's rising, I know I cut back and put that towards the increased cost - when it was lower, I was putting the money saved as overpayments to the mortgage. I also prefer it as I don't have to trawl through allsorts of magazines and whatnot every 2,3,5 years looking for a new mortgage to transfer to, Haven't got the time! - just nice and simple 'tracker' - That's just me however, other's may not like it of course.

Have a look at the 'what mortgage' magazine in WHSmith's thats out every month, gives lots more insight to all things mortgage related and from that you can work out what suits your particular situation the best.

Cheers! DtM! West London & Slough UK!