why have 5 year fixed rates rocketed???

dwsjarcmcd

I think that there will be many diferent reasons for the recent increases but the main one may be the increase in savings rates. There are now quite a few 3/4/5 year fixed rates paying 4% - 5% plus. This money is increasingly used instead of the wholesale money markets.

If a lender is paying those types of rates to savers, they need to add a margin before they lend it back out.

David

talkalot

confused31 wrote: »

I took out a 5 year fixed rate in may and the rate i got was 4.15%, at the time someone was doing a five year fixed rate at 3.99%, but i missed out on that.

Now my friend has asked me to look for the best five year fixed rate and all i can find is 5.10% with the chelsea building society, does anyone know of a better deal, the friend i know as a 25% deposit.

What im struggling to get my head round is, how can banks expect people to borrow at these high rates, the bank of england rate is still at 0.5% and the libor rate is still low.

So why are the banks charging these high rates for 5 year fixed mortgages??

Have been away for the last few days so not sure if this is a new deal or just about to run out.

HSBC

Mortgage Special 5 year Fixed Rate
Max Loan Balance £500,000 & Max LTV 60%
5 year Fixed Rate Mortgage Booking Fee Rate Fixed Until Then our HSBC variable rate for the rest of the term Overall cost for comparison
5 Year Fixed £999 4.95% 31.10.14 Currently 3.94% 4.5% APR

opinions4u

confused31 wrote: »

What im struggling to get my head round is, how can banks expect people to borrow at these high rates, the bank of england rate is still at 0.5% and the libor rate is still low.

Banks don't raise their money at BofE rates. They don't raise their money for fixed mortgage rates at LIBOR (which is a short term rate) either.

Look at this chart for UK Swap Rates which is far more reflective of the cost of raising funds long term. Rates are higher than they were 12 months ago when you look at 5 year lending.

Other points to consider:

- falling house prices and rising unemployment mean a higher risk of losses. This needs to be priced in to lending.

- many banks cannot raise wholesale funds beyond a 12 month period. This is why savers are seeing rates of 5%+ on 5 year term accounts. Do you think it's good business to pay savers 5% but charge borrowers less? Should taxpayers be charged the difference?

- the lack of wholesale funding has pushed up the cost of the swap rates above. Simple economics that reduced supply = higher prices. But your average high street banks are not making more money as a result.

So why are the banks charging these high rates for 5 year fixed mortgages??

You think rates of around 5% are high? I paid 15.4% for my mortgage in the 1990s. Time to take stock of how good things have really become for mortgage borrowers!!

confused31 wrote: »

I havent seen any either , its just the greed from the banks, they have made 6 billion according to the news but the house market as reported house prices will still fall until 2011.

If house prices are falling, as you state, what logical reason would there be for a lender to reduce their margins as you suggest? That would be the kind of madness that would lead to bank failures. Do you think bank failures are good for anybody?

As for the £6bn made by HSBC and Barclays, how much of it has been made in their UK retail businesses (which includes UK mortgage lending)? Barclays saw their retail bank profits drop from around £600m to just £200m. Margins are being squeezed massively but it makes a good story for press and politicians to jump on and claim there's a rip off in place. I don't see a rip-off.

When you talk about £6bn, don't forget to knock off £5bn for Lloyds/HBOS, £700m for Northern Rock and some multi-billion pound write-downs for RBS. It's hardly a good environment to be lending in.

confused31_2

opinions4u wrote: »

You think rates of around 5% are high? I paid 15.4% for my mortgage in the 1990s. Time to take stock of how good things have really become for mortgage borrowers!!

.

Lets get this right i dont think 5% is a high rate, in the 1990's the boe rate was 15% so if you was paying .4% above the base rate i think thats okay, but when the boe rate is at 0.5% and the banks are charging 5.75% i think its taking the p!ss, they are charging 5.25% above the boe rate, which in my eyes is just greed.

Especially considering we was the ones who have bailed them out the !!!!!!, i know savers deserve better rates, but even to get the best rates you need to tie your money up for 5 years.

Your a ex bank manager tell me the answer to this? When was the last time banks were charging lenders over 5% above the boe rate??

opinions4u

confused31 wrote: »

Lets get this right i dont think 5% is a high rate, in the 1990's the boe rate was 15%

They touched 15% for about 2 hours. I think you'll find 14% was the peak they reached for any period of time.

but when the boe rate is at 0.5% and the banks are charging 5.75% i think its taking the p!ss, they are charging 5.25% above the boe rate, which in my eyes is just greed.

What part of "they don't raise their money at BofE base" don't you understand? In 1990 there was no such thing as a 5 year fixed rate mortgage.

Especially considering we was the ones who have bailed them out the !!!!!!

Although you highlight £6bn in profits by two banks not bailed out in one of your posts above.

i know savers deserve better rates, but even to get the best rates you need to tie your money up for 5 years.

So you do understand the connection between fixed rates for savers and fixed rates for borrowers. Why should a bank pay a saver 5% and charge a borrower 4%? Would you do this if it was your own money? Would you expect Tesco to sell everything in store at a loss?

Your a ex bank manager tell me the answer to this? When was the last time banks were charging lenders over 5% above the boe rate??

We are living in extraordinary times. This is probably a first. But that 5% isn't profit for them. They don't raise their funds at Bank of England base rate. Funds they raise overnight or at a 3 month term on LIBOR aren't suitable for lending to somebody for a 2 year fix, let alone a 5 year fix.

You say savers deserve higher rates. But you think borrowers should pay below these rates.

It's a bizzare point of view.

Jacka87

We seem to be getting off topic, the original question was why have they risen in last few months.

the reasons given about banks needing to make profit etc are fine. However 5yr swap rates, the rates that banks lend on, where increasing so 5yr fixes should increase. However they have since been falling and no sign of banks reducing there rates a bit yet?

I do appreciate that there are factors such as people being made unemployed and house prices being unstable etc but if banks dont lend then people cant buy and we are in a bad cycle. Banks lending is one way to ease the problem. They should look at being tight with there lending critera as opposed to charging everybody higher rates to cover people who end up not paying!

The banks are also under pressure to lend to businesses as they havent been doing that as much as they promised when they where bailed out!

opinions4u

Jacka87 wrote: »

the reasons given about banks needing to make profit etc are fine. However 5yr swap rates, the rates that banks lend on, where increasing so 5yr fixes should increase. However they have since been falling and no sign of banks reducing there rates a bit yet?

Look at this link. Compare swap rates today to 6 months ago. Have they fallen? Aboslutely not. They have risen (from 3.15% to 3.73% for 5 year terms).

This answers the question.

The OP doesn't wish to consider it as relevant though.

supersunshine

I must admit to being a bit surprised at the fixed rates going up so soon - I was looking for a 5 year fixed but am now tempted by the capped tracker from First Direct.

Below is a link to the past BoE base rates going back to the 1970s. You have to remember that the BoE rate will inevitably go up and then add to that the percentage that the banks use to get their variable rate. It they went up to say 4% and the average bank is adding say 2% to get their variable then that would make 6% so you would be saving money. It is all a gamble though and it is very hard to know what to do

http://www.bankofengland.co.uk/statistics/rates/baserate.pdf

Jacka87

Look at this link. Compare swap rates today to 6 months ago. Have they fallen? Aboslutely not. They have risen (from 3.15% to 3.73% for 5 year terms).

I have looked at you graph and I also looked at it about a month ago as well as taking numbers from posters on other threads.

You are right compare this month to 6 months ago and they are up. True! however the swap rates where rising and rising over the first 4months or so and then they peaked and even dropped a bit. It seems the drop has not continued and they have now stabalised. However Many banks put there rates up, about a month before they peaked. They then increased again as they peaked. Now that they have falllen back and stabalised at that rate for last 2months why have the banks not taken the amount of there secon rate rise back?

I do agree that they need to make profit etc. However the banks have the nak of tieing there rates to something (it used to be boe base rate, then libor and now swap rates), but once that number seems to be going in the wrong direction for the banks they suddenly tie there lending to something different. As an example it seems they are now relying less on 5yr swap rates and lending against there own savings rates. Yet if you look back 6months ago the arguement was al about swap rates not boe base rates.

I will be honest I expect nothing else from 'bankers' and the government seem to be doing very little to ease public perceptions!

confused31_2

Jacka87 wrote: »

However the banks have the nak of tieing there rates to something (it used to be boe base rate, then libor and now swap rates), but once that number seems to be going in the wrong direction for the banks they suddenly tie there lending to something different. As an example it seems they are now relying less on 5yr swap rates and lending against there own savings rates. Yet if you look back 6months ago the arguement was all about swap rates not boe base rates.

I will be honest I expect nothing else from 'bankers' and the government seem to be doing very little to ease public perceptions!

its like inflation how is that worked out? i know for a fact from a 15 months ago our weekly shop went from 70 pound to over 100 pound a week now.

And we only buy the same things, inflations a joke too.