Fixed Rate Going Down?

pollyanna24

"Fixed Rates Mortgages Getting Cheaper. Time to fix?
A host of mortgage companies have dropped the cost of their fixed rates. This may seem strange as we're in a moment of rising interest rates. Yet fixed rates are based on the long term predictions on interest rates, not just what's happening in the short term. So if you're looking to fix, it's just got cheaper. To find out if it's right for you, if you've already got a mortgage read the Remortgage Guide: Download PDF, Free Printed Version, More Details or for new mortgages the Mortgage Guide: PDF, Printed Version, More Details"

This was in Martin's e-mail that I received today. What does this mean exactly? That interest rates will be going down in the long term? What's long term? A year? Why exactly are banks reducing their rates if there is likely to be another rise next month?

back2square1

Are you able to give any more specific details of which companies are lowering their fixed rates. I am currently looking at first buy mortgages. I have £37K deposit but am looking at borrowing up to a possible £188000 to buy property of £225k.
I dont have any debts, loans, credit cards these have all been paid off recently.
I am self employed (work for my fathers tiling business) earning £30000 nett pay pa. My girlfriend only gets £5000pa plus £4200 pa maintenance for her children which is not by court order, her youngest child is 5 yrs old. She is looking at changing jobs to earn more however this would still be part time due to having young children.
We are currently in rented accommodation, our current mnthly outgoings are £2252 (rent, bills, council tax, food, etc) and we cope very well.

pollyanna24

I have no idea which companies are lowering their fixed rates. I was only quoting from Martin's e-mail which I got today. I was myself wondering why companies would do this as there is likely to be a rise again soon.

taketwo

Nationwide have lowered their fixed. Don't know about anyone else I'm afraid

back2square1

I just read MSE email too and I have scoured Internet and cannot find who these lenders are that have or are going to reduce fixed rates.

I shall have to keep looking, thanks!

golly99

Currently with Nationwide and due to run out in May, will be seeing them soon, best deal seems to be a 5.44% fix with no fee for members only, doesn't seem bad looking around at other providers. Would be interested if other providers start adjusting their rates though.

grade15

britannia fixed 5 yrs 5.24%
woolwich/barclays.. 10yr fixed 5.28%

MarkyMarkD

Fixed rate mortgages are priced by the lenders in relation to what are called "swap rates", which are effectively the rates they can borrow fixed rate money at.

Swap rates in the money markets are on a downward trend. Swap rates are (very loosely) the average rate that the market expect over a particular future period. So, if the money markets expect rates to rise in the immediate future, but fall a lot more in 1 or 2 or 4 years' time, it can be true that swap rates are lower than current market rates. At such times, fixed rate mortgages will seem like better value than variable rate mortgages.

But the apparent "better value" is spurious. All things being equal, the market's projections of future interest rates will be fulfilled, and the amount a borrower will pay on a fixed rate mortgage (over a particular period) will be similar to what they'd pay on a variable rate mortgage.

Of course, in practice, the market's projections are a guess, and they will as likely be wrong as right. But on average, fixed and discounted rates should represent equally good value. In which case, opt for a fixed if you need the security that a rate can't go over a certain level; opt for a variable if you don't mind your payments going up and down.

Becase lenders have to purchase swap agreements from a counterparty in the money markets, they incur exit costs if they need to get out early. This is why penalties on fixed rate mortgages are often higher than on variable rate mortgages, and fixed rate mortgages tend to have less flexible features. Both of these aren't absolutely cast iron, but that's the general tendency. This is another reason why some people would prefer to take the extra risks of a variable rate - because they reduce the risk that they will have to pay penalties if they need to exit the mortgage deal early.

There is a lag between money market rates moving and the lenders adjusting their fixed rate products, because the lenders will buy (say) a month's lending worth of swaps in advance so that they can guarantee a rate to their customers/brokers for a period of time. So, until the current funds have been used up, they may not reduce their rates or they'd be making a loss.

golly99

Thanks for the rate info, Britannia one looks good at 5.24%, but concerned about all the costs, £499+valuation fee (doesn't state what this is). The next one up at 5.39% is not that far off from Nationwide at 5.44% but the Nationwide doesn't have any costs at all.

Will continue to have a look round!...anybody else spot these reduced rates which Martin mentioned let us know!

savingspender

Derbyshire Building Society are doing a 4.95% fixed rate for 10 years.

stolt

thanks for heads up on the derbyshire rate, seen this what i thought was a good rate... compared to others, slightly steeper application fee, and doesnt mention the survey fee, but thought that was a good rate.

'5 year' Fixed Rate- £999 fee

Application fee
£999
Minimum deposit
20%

Initial rate fixed until 31.03.2012

5.10%
Then, for the remainder of the mortgage term, changing to our Standard Variable Rate, currently
7.25%
The overall cost for comparison is
6.7% APR