fixed rate mortgages

motokid

HI
can any one tell me if i would have a chance of compensation over a fixed mortgage which finished last january, it was a ten year fixed at 5.8% it started in 2008 and shortly after the rate started going down and kept going down , now i am wondering if we can say that the bank may have mis sold us knowing that rates were going to change or did they just not know how it was going to go ,
interested to find out

phillw

motokid wrote: »

HI
can any one tell me if i would have a chance of compensation over a fixed mortgage which finished last january,

I suspect you have a 0% chance of compensation.

Choosing a mortgage is like gambling. If you think the rates will go down then you get a tracker, if you think they will go up you get a fixed rate.

What did they tell you that made you pick a ten year fixed rate?

motokid

we just picked it because the rate at the time was higher and just assumed we would be safe

BoGoF

As did a lot of people.......then we had the credit crunch and low rates. It's called tough luck.

getmore4less

You should have reviewed your mortgage at least annually to see is switching was a viable option.

Even with ERC it was quite likely you would have been better of switching.

Edi81

Read up on banks fund themselves.
They would have entered into a fixed rate swap to fix their borrowing cost in line with what they had lend to you.
That’s why there are early repayment charges on fixed rate mortgages.

phillw

motokid wrote: »

we just picked it because the rate at the time was higher and just assumed we would be safe

You were safe, the rate never went above that you signed up for.

You can guess what the lender thinks by looking at what rates and periods they are offering. IIRC there were predictions in the financial press at the time of two base rate cuts in the following months, which is why they were pricing trackers higher than the fixes. Despite it looking likely that rates would drop some people were happier to know that their budget wouldn't be stretched if BoE jumped to 14% again.

The lenders are playing the same game as you, so you can't 100% rely on what they think is what will happen. They don't always agree with each other either.

Unfortunately nobody tells you how to decide between a tracker and a fix and for how long, because advise is regulated and if you end up with the wrong advice then you could claim for compensation.

csgohan4

I wish my bank had a crystal ball

Brock_and_Roll

Without getting too technical......

1) banks have no better idea of whether interest rates are likely to go up or down than the next person.

2) When a bank offers a fixed rate, lets say 5% for 5 years, it is taking interest rate risk itself. If rates rise to say 9%, it will have to fund itself at 9% but will only receive 5% from the customer so is losing 4% on the mortgage.

3) Conversely, if interest rates fall, the bank will be "in the money" on the fixed rate mortgages

4) Banks DO NOT WANT INTEREST RATE risk - they are just as likely to lose as to win and the swings in their profitability on huge mortgage portfolios could devastate their profits.

5) So Banks hedge their interest rate risks - protecting themselves against higher rates by giving up potential gains from lower rates.

6) Technically they normally do this by entering into Interest Rate Swap contracts. If you have to pay an ERC to exit a fixed rate early, the ERC is in theory the cost of the bank exiting the Interest Rate Swap.

ACG

You can claim if it interest rates drop and you overpay (in your mind)?
Does that mean a bank can claim against you if rates increase and they could have charged a higher rate?

IF either of those were the case, what is the point in having a fixed rate?

getmore4less

motokid wrote: »

we just picked it because the rate at the time was higher and just assumed we would be safe

This is the mistake people are still making, they don't look at the risks that come with fixing thinking it is the save option.

We get the rates can only go up fans saying fix long but they don't do the analysis to work out how much rates need to go up to have been right.