low base rate =rip off ?
Discussion
With such a low base i am only paying 2.24% -whooopee.Until i discovered that it is......348% above base rate!!!!
And yet if base was a high 6% -a mortgage would be about 8%-ish or 26.88% above base which would mean a mortgage of 0.67% for me).If the 348% was applied to 6% base it would be 26.88%.
Have i got methodology wrong , or skewed the facts?
And yet if base was a high 6% -a mortgage would be about 8%-ish or 26.88% above base which would mean a mortgage of 0.67% for me).If the 348% was applied to 6% base it would be 26.88%.
Have i got methodology wrong , or skewed the facts?
Not sure if this is serious and I'm feeling a bit grumpy so apologies in advance.
Your issue seems to be that the simplistic, perceived gross margin is too high a percentage for you?
What gross margin would you prefer? Did you not decide on the deal on the basis of ultimate cost to you? Base rate gives us a rough idea of the cost to provide the funds in a way that we don't see in other industries. Do you know the margin on your laptop, house, car,clothes?
Interesting point though
Just read this, i really am grumpy! I'll think of something silly to type later to lighten the mood.
Your issue seems to be that the simplistic, perceived gross margin is too high a percentage for you?
What gross margin would you prefer? Did you not decide on the deal on the basis of ultimate cost to you? Base rate gives us a rough idea of the cost to provide the funds in a way that we don't see in other industries. Do you know the margin on your laptop, house, car,clothes?
Interesting point though
Just read this, i really am grumpy! I'll think of something silly to type later to lighten the mood.
kers obsessed with buying their first home what real life is about. tali1 said:
Yeh i like 2.24%.Thing is at 8% house prices would be a lottt cheaper....
Swings and rounda....
Well yes and no... the true cost of a house is not the agreed offer price but what you're actually paying the bank + your deposit.Swings and rounda....
Using a mortgage calculator, for a £300k mortgage at 2.24% you'll pay back £392k in total whereas for 8% it's £695k. Obviously it's an extreme example but I think you'll find that if rates go up, a fall in house prices (if there is one) will be negated by the increased borrowing costs.
z4chris99 said:
P-Jay said:
tali1 said:
Have I my got methodology wrong?
Yes.Your lender's margin is 1.74% if base rate was 6% then your rate would be 7.74% margins aren't set as a percentage of base, merely added to it.
if i borrow at 1% and lend at 2% my margin is 100%
His methodology is right.
To the OP, the amount the banks charge is a percentage of the TOTAL mortgage.
Base rate is irrelevant to them.
It is relevant to you since they add it on to their fee before charging you but they simply pass that through.
(assuming you are on a variable rate).
The real rip off would be to check how the current spread compares with previous spreads historically.
So back when house prices only went up and you could get 120% LTV I remember INCREDIBLY low spreads.
I am sure some actually had variable rates with a NEGATIVE spread.
Certainly I was offered a +70bps spread at one point (but failed to take it - MORON).
So compared to 0.70% say, the rate of 1.74% is expensive.
Here a snapshot of the data you want to compare with:
tali1 said:
With such a low base i am only paying 2.24% -whooopee.Until i discovered that it is......348% above base rate!!!!
And yet if base was a high 6% -a mortgage would be about 8%-ish or 26.88% above base which would mean a mortgage of 0.67% for me).If the 348% was applied to 6% base it would be 26.88%.
Have i got methodology wrong , or skewed the facts?
The amount they charge you over the base rate is a combination of liquidity premium (base rate is an overnight lending rate and your mortgage is 20+ years) and credit spread. These are absolute values, not factors of the underlying interest rate.And yet if base was a high 6% -a mortgage would be about 8%-ish or 26.88% above base which would mean a mortgage of 0.67% for me).If the 348% was applied to 6% base it would be 26.88%.
Have i got methodology wrong , or skewed the facts?
Shaoxter said:
Using a mortgage calculator, for a £300k mortgage at 2.24% you'll pay back £392k in total whereas for 8% it's £695k. Obviously it's an extreme example but I think you'll find that if rates go up, a fall in house prices (if there is one) will be negated by the increased borrowing costs.
I take the view that the actual cost of a house is what people can afford to pay each month. If money gets cheaper, prices rise to fit and vice versa. For example, if you can afford £500pcm on a mortgage that is probably what you will spend, as we all usually want the biggest/best house we can afford. The price on the advert is effectively inconsequential; what matters is the cost per month.Of course I may be wrong, but that is Simpo's Theory of House Prices.
P-Jay said:
z4chris99 said:
er no you be wrong.
Seriously? "you be wrong" I'm not pendant but that's moronic, but then of course so is being a "Private Equity Real Estate / Property Developer" who doesn't understand even the most basics of mortgages. Edited by z4chris99 on Friday 16th May 10:27
z4chris99 said:
P-Jay said:
z4chris99 said:
er no you be wrong.
Seriously? "you be wrong" I'm not pendant but that's moronic, but then of course so is being a "Private Equity Real Estate / Property Developer" who doesn't understand even the most basics of mortgages. Edited by z4chris99 on Friday 16th May 10:27
z4chris99 said:
P-Jay said:
I'm not a "Private Equity Real Estate / Property Developer", merely a lowly IT sales guy, but trust me if asked a question about Small Business Servers or the like, then I'd know more than the very basics, and my terminology would be correct.
not sure of your point. P-Jay said:
My point is, that your business is property development, one of the most fundamental aspects of that is financing, yet you don't understand one of the most basic principles of it - your counter argument was that I'd mixed up my terminology - my argument is "so what" I don't rely on it for my livelihood.
what principle do I not understand? my job is working in a few billion quid fund, thankfully financing is done by bankers, and I concentrate on swanning round building sites.
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