Another interest rate thread - fixed rates

dantheman2010

Sorry guys, another interest rate thread.

Just wondering whether when the base rates rises will the fixed rates on offer really go through the roof?

When I fixed my deal over 2 years ago, before the rate drop it was fixed at 6.13% for 2 years based on my LTV. Now I am still on the same LTV and the rate is 5.29%, so not reduced that much considering the BofE dropped from about 5% to 0.5%. So considering on fixed deals mortgage companies didnt really pass on the savings, then surely they wont be hiking the prices up when it does go up?

If it has gone from 6.13% (when at 5% bofe) to 5.29% (when at 0.5%) then surely if BofE hits the 4/5% mark the fixed rates arent going to be up in 8/9% mark?

If they didnt pass on the cuts surely they wont pass on the hike (by a huge margain)?

Just wondering what everyones thoughts on that are? I am now on the C&G SVR which is guaranteed 2% above BofE and I have been offered 5.79% for 5 year fixed as well as 2 year rate above, but BofE would need to get to around 4% for me to see that be a benefit.

opinions4u

When trying to work out what will happen to fixed rates, don't get to drawn in to worrying about BofE rates. You saw on the way down that fixed mortgage rates and Bank of England base rates don't correlate well.

Swap rates are a far better indicator of the cost of fixed rate mortgage funds.

One thing you do need to consider though. The supply of funds to the banks 4 years ago was huge which meant low prices for consumers. That supply has dried up. Lower supply = higher prices. If they situation remains the same, and the wider interest rate environment is upwards, swap rates will go up faster than they came down.

dantheman2010

Cheers, whats the feelings out there that the BofE rate will go up to 5% in next year or two? Like I said for me to fix I would need to see it increase from 0.5% to 3.75+% to see a benefit in fixing?

dantheman2010

Thanks, now if you personal guess was correct then I would be better off sticking with the SVR and look at fixing towards the end of next year and getting as much saved / overpaid in the meantime.

getmore4less

You have to look beyond any fix you might take and look at the follow on rate and what the deals might be on the table then.

Base+2% is looking good these days but will it be good in 2/5 years.

By changng deal you lose out to start with break even then win but then the deal ends and if the base+2% is still competative you start losing again.

For 2 year deals I think people will lose overall, 5 years is harder to gauge because if rate go up margins will probably narrow but by how much?


My feeling is stick with the low cost tracker and overpay/save

Thrugelmir

If you are concerned by rising rates in the future. Then the best defence is to overpay at the current time by as much as you can afford.

The less you owe the less interest you'll pay. The sooner the mortgage will disappear.

dantheman2010

That is the way I am leaning toward, but if it ever went up to 5% which it was at before the drop then I would be paying a fortune. A lot more than on the fixed.

The deal after the fixed is their home owner rate which is currently 3.5%.

Its such a big and hard decision.

I either risk it and potentially be able to save alot (in the short to mid term) and I fix and know what I am paying but not have as much surplus cash.

dantheman2010

Thrugelmir wrote: »

If you are concerned by rising rates in the future. Then the best defence is to overpay at the current time by as much as you can afford.

The less you owe the less interest you'll pay. The sooner the mortgage will disappear.

Thats worth a thought but if I only get say 6 months of low rates and have over paid say £300 a month (about what I could afford), thats on £1800 which wouldnt do anything to my LTV really, I would rather have £1800 in my pocket towards any rate hikes, if I am making sense.

Thrugelmir

dantheman2010 wrote: »

I either risk it and potentially be able to save alot (in the short to mid term) and I fix and know what I am paying but not have as much surplus cash.

You also need to consider the longer term. Look at the position over the remaining term of your mortgage. What will rates be when you exit the 5 year fixed term in 2016?

Likelihood by then a lot higher.

dantheman2010

Exactly, so which was is better. If I dont fix and I am at 2% above BofE and that raises to say 5% over the 5 years (especially if sooner rather than later) then I am going to be paying more than the fix. And even if I do fix, when that ends I could be on even more than 5.79% meaning even more unmanagable.

If like what Opinions4U's personal belief were to happen, then I would still be able to overpay or save for all of this year, all of next and potentially the year after. As the BofE would need to hit 3.75+ for me to see a benefit in fixing.

Whats the chances that a jump of 3.25% will happen in the next two years?

Or like when the rates fell from around 15% to 7% and from 7% to 5%, the norm became around 3.75-5%, will the new norm given this drop become 2.75-4%? If so and it fluctuated between the two then I would be better off sticking to the SVR. Plus there is no ERC fee or overpayment fees.

Burridge60

Posted elsewhere as others have done.

Why do you need to buy a fixed rate mortgage product when you can do your own "fixed" rate by overpaying what you have now?

Pick up the phone and call your lender and then ask to pay what the Five year fixed rate would require you to pay (or the two year). Then watch as your mortgage debt reduces while the rates stay low and you have already budgeted for the day the rates go up. When they do just ask your lender to keep your payment to what you have increased it to. Your risk is that BoE rates increase to take the variable rate above the 5.79% rate in the next five years.

After five years you are exposed to variable rates all over again even if taking the fixed rate.

You also need to factor in the fee to buy the fixed rate product and the current variable rate that applies after the fixed rate. Some lenders now have 4.99% and higher variable rates. Some have even gone up in the last two years!