Fixed rates - why have banks rates not dropped since BOE base rate drop?

wrcallar

SavingSteve wrote: »

2 years fixes are cheaper, rates aren't expected to rise in the next two years. So 2 from years now, theorectically, you'll be able to secure a 2 or 5 year fix at current rates. All in theory of course.

You'll have to pay fees again in 2 years, but as an example, if you stick to 65% LTV, HSBC will give you 0.99% with a £1.5k fee. On a £195k (65% LTV) mortgage the 0.99% saves you £4.4k compared to the 2.24%, even taking into account the higher fee. Even spending another £1.5k fee in two years that's still a £2.9k saving, not to be sniffed at.

Also another question, whilst on such a low rate (0.99), does it make sense to hammer the repayments as much as I can?

If I set it to 23 years I pay 780 a month. I can afford 1k. So should I over pay 220 a month or set my term to 17 years and pay 1.03k a month? If I over pay I pay 0% interest on the £220? Whereas I pay 0.99% on the £220 if I pay by adjusting my term? Is that correct? (Hope my logic can be followed, even if it is majorly floored!)

morwok

In my opinion it is only worth hammering overpayments if you cannot get a better return than your mortgage rate. E.g. You can get 1.5% with Santander so makes more sense to collect interest. Granted it won't be much different and you also need to consider the account fee but also has cashback. You can get higher than 1.5% though.

SavingSteve

Yes overpay if you can afford it and can't get better in net saving / investing elsewhere. Personally (my preference) I'd go for the longer term, that way you're not tied to the overpayment, so not make one if there is a rainy day. But remember, overpayments are usually limited to 10% of the (reducing) balance. Different lenders have different rules.

kingstreet

The rate swap market which makes fixed rates available had discounted a UK rate cut some time ago, so he rates which have been available for some time already take this into account.

getmore4less

wrcallar wrote: »

Also another question, whilst on such a low rate (0.99), does it make sense to hammer the repayments as much as I can?

If I set it to 23 years I pay 780 a month. I can afford 1k. So should I over pay 220 a month or set my term to 17 years and pay 1.03k a month? If I over pay I pay 0% interest on the £220? Whereas I pay 0.99% on the £220 if I pay by adjusting my term? Is that correct? (Hope my logic can be followed, even if it is majorly floored!)

All the term does is set the contractual payment you can ignore it after that.

Unless you hit ERC longer term with overpayment give the opportunity to not overpay, change term stuck with the higher payment.

Lower rate and overpay can protect against rate rises better than a fix.

The calculations are easy with a simple mortgage calculator and a little bit of understanding of basics on how mortgages work.

There are only three variable, how much you owe, interest rate, how much you pay.