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Usually mortgages are a fixed rate for the life of the loan (usually 30 years) -- at least here in the USA. Variable rate (eg "ARM") mortgages are also availabl

Usually mortgages are a fixed rate for the life of the loan (usually 30 years) -- at least here in the USA. Variable rate (eg "ARM") mortgages are also available but are less common and mostly used for short term flipping and the like, for the very reason you say -- nobody wants to risk a rising payment due to rising rates. Is the situation very different in the UK? Do Britishers actually prefer variable rate mortgages for some bizarre reason? Edit: I did my own research and was shocked to find that in the UK it sounds like variable is indeed more or at least as common as fixed and that even fixed tends to be fixed only for the first 5-10 years!This is the opposite of the US, where I know someone on a normal middle class circumstance who just secured a 3.25% 30 year fixed mortgage, and this is extremely common right now if you have good credit. Even the "scary and risky" variable mortgages in America are things like a 5/1 ARM which is fixed for the first 5 years, which sound like they'd be relatively low risk for the UK! I am baffled. Is the great advantage for the American homeowner simply due to the wages of empire, ie dollar supremacy? Federal policy favoring homeowners? Or what? I did always wonder how banks could afford to provide such a good deal. This is a vast difference really worth wondering about; I hope someone has some insight. Source: https://www.money.co.uk/mortgages/should-you-get-a-fixed-tracker-or-variable-rate-mortgage.htm https://www.money.co.uk/mortgages/should-you-get-a-fixed-tra...

dajomu 5y ago
I've been on a 3 year fixed rate mortgage here in the UK. The first 3 years are something like 1.8%, after that it goes up to something like 3.6%. The idea is that you remortgage every three years at no extra cost, so you should be effectively paying that lower rate for the full term of your mortgage, that is unless the economy tanks and interest rates go through the roof...
dragonwriter 5y ago
> Usually mortgages are a fixed rate for the life of the loan (usually 30 years) -- at least here in the USA. Note that the very low share of ARMs is a recent (post Great Recession) phenomenon. Prior to that, ARMs were typically a large minority of loans. https://www.newyorkfed.org/medialibrary/media/research/current_issues/ci16-8.pdf https://www.newyorkfed.org/medialibrary/media/research/curre...
- galdosdi 5y ago
  Ah, makes sense. Low rates, you want fixed. High rates, you want variable. I just don't understand how the bank puts up with it.
  - dragonwriter 5y ago
    Most of the ARMs were sold with very little downward adjustability. With rates at historic highs, the ones I was seeing when mortgage shopping in 2006ish consistently had wide open upward adjustment and one 0.25% step available of downward adjustment to their minimim rate from the initial rate. The bank wasn't taking much risk on the adjustable rate.
    - galdosdi 5y ago
      I mean the risk the banks take today offering a fixed 30 year note at a very low rate, if there is significant inflation or rate increases anytime soon. It seems like a very good deal for the buyer right now and for the last decade.
DrBazza 5y ago
Uk banks offer a wide range of mortgages. Interest rates used to be set by the government rather than the Bank of England and were a political tool until the late 90s. That added to uncertainty and pushed people to fixed mortgages. Then the era of low interest rates arrived and people were locked in to high fixed rate mortgages which had a fee to get out of. Now there are Australian type mortgages, basically repay as quick as you can, that are variable rate plus X. Or fixed and floating, or pure fixed. It generally depends on your personal position.
ljm 5y ago
A lot of things in the UK are set up essentially with the notion that you shop around as much as you can to get the best deal, but it extends to credit cards, utility bills, internet, your mobile phone plan, etc. and not just one-off purchases. You have little to no incentive to stick around as a long-term customer when there will be a fresh new deal enticing you to switch whenever your last contract expires. It's often more expensive not to switch as there's no benefit to being loyal to an energy or telecoms firm. This arguably extends to mortgages too. At the root of it all is that there's more competition between these elements and legislation has forced businesses to make it easy to switch providers at no cost. Anecdotally, I've been through three different ISPs in as many years in order to keep my internet costs down. That doesn't directly address the question, it just highlights a mindset.
iso1210 5y ago
Fixes in the UK now are typically 2, 3, 5 or 10 years, certainly not life of mortgage. Idea is that prices increase and you repay the mortgage and you remortgage onto a better rate (so start with 90% 5 year fix, after 5 years you've paid down to 85% of the original value, but value has increased so you now remortgage onto 75% LTV which is a lower rate than you would have on 90% LTV as it's less risky. Mortgage rates in the UK are far lower than 3.25% though -- 80% LTV on a 10 year fix with nationwide is 2.8%, 2 year fix is 1.54%. Drop that to 60% LTV and 2 year is 1%, 5 year 1.1% and 10 year 2%. It all falls down if rates were to shoot up, or house prices were to shoot down. The UK government traditionally protects house prices like the US government protects the S&P though. A house price crash is bad for polling.

dajomu 5y ago

I've been on a 3 year fixed rate mortgage here in the UK. The first 3 years are something like 1.8%, after that it goes up to something like 3.6%. The idea is that you remortgage every three years at no extra cost, so you should be effectively paying that lower rate for the full term of your mortgage, that is unless the economy tanks and interest rates go through the roof...

dragonwriter 5y ago

> Usually mortgages are a fixed rate for the life of the loan (usually 30 years) -- at least here in the USA. Note that the very low share of ARMs is a recent (post Great Recession) phenomenon. Prior to that, ARMs were typically a large minority of loans. https://www.newyorkfed.org/medialibrary/media/research/current_issues/ci16-8.pdf https://www.newyorkfed.org/medialibrary/media/research/curre...

galdosdi 5y ago
Ah, makes sense. Low rates, you want fixed. High rates, you want variable. I just don't understand how the bank puts up with it.
- dragonwriter 5y ago
  Most of the ARMs were sold with very little downward adjustability. With rates at historic highs, the ones I was seeing when mortgage shopping in 2006ish consistently had wide open upward adjustment and one 0.25% step available of downward adjustment to their minimim rate from the initial rate. The bank wasn't taking much risk on the adjustable rate.
  - galdosdi 5y ago
    I mean the risk the banks take today offering a fixed 30 year note at a very low rate, if there is significant inflation or rate increases anytime soon. It seems like a very good deal for the buyer right now and for the last decade.

DrBazza 5y ago

Uk banks offer a wide range of mortgages. Interest rates used to be set by the government rather than the Bank of England and were a political tool until the late 90s. That added to uncertainty and pushed people to fixed mortgages. Then the era of low interest rates arrived and people were locked in to high fixed rate mortgages which had a fee to get out of. Now there are Australian type mortgages, basically repay as quick as you can, that are variable rate plus X. Or fixed and floating, or pure fixed. It generally depends on your personal position.

ljm 5y ago

A lot of things in the UK are set up essentially with the notion that you shop around as much as you can to get the best deal, but it extends to credit cards, utility bills, internet, your mobile phone plan, etc. and not just one-off purchases. You have little to no incentive to stick around as a long-term customer when there will be a fresh new deal enticing you to switch whenever your last contract expires. It's often more expensive not to switch as there's no benefit to being loyal to an energy or telecoms firm. This arguably extends to mortgages too. At the root of it all is that there's more competition between these elements and legislation has forced businesses to make it easy to switch providers at no cost. Anecdotally, I've been through three different ISPs in as many years in order to keep my internet costs down. That doesn't directly address the question, it just highlights a mindset.

iso1210 5y ago

Fixes in the UK now are typically 2, 3, 5 or 10 years, certainly not life of mortgage. Idea is that prices increase and you repay the mortgage and you remortgage onto a better rate (so start with 90% 5 year fix, after 5 years you've paid down to 85% of the original value, but value has increased so you now remortgage onto 75% LTV which is a lower rate than you would have on 90% LTV as it's less risky. Mortgage rates in the UK are far lower than 3.25% though -- 80% LTV on a 10 year fix with nationwide is 2.8%, 2 year fix is 1.54%. Drop that to 60% LTV and 2 year is 1%, 5 year 1.1% and 10 year 2%. It all falls down if rates were to shoot up, or house prices were to shoot down. The UK government traditionally protects house prices like the US government protects the S&P though. A house price crash is bad for polling.