Fixed rate mortgage and Bank of England rate.

remyroo

Hi. Our fixed rate of 1.79% finishes at the beginning of May. Santander have offered us a new rate of 1.69%. My question is if the Bank of England reduces its interest rate does this have an effect on fixed rates or do Banks use other criteria when setting rates.
Thanks

pramsay13

If it's fixed rate this means it is fixed so even if the Bank of England raises its rate to 40% your mortgage rate is fixed at 1.69% or whatever for the duration of the fixed term, usually 2 or 3 or 5 years.

If it's a tracker rate it tracks the Bank of England rate, so it might be base rate + 3% so that will move along with the interest rate.

remyroo

Sorry should have explained that I don’t want to sign up to the new fixed rate at the moment in case Santander reduce their rates before May and wanted to know if banks look at the BOE base rate when setting their fixed rates.

Edi81

Banks look at what they are paying in the wholesale markets for funding which is indirectly linked to BOE.

[Deleted User]

They also look at what the competition is up to, how much they have lent against budget, types of mortgages they have given out, and thousand other factors when deciding to set rates.

There are a few account managers for high street banks who have good me last year that they are losing money on some of the deals they are doing just because they need more customers. They hope to sell them other stuff in the future to recoup the losses.

Its a tricky thing but I wouod say the the BoE rate has less to do with actual rates on offer now than than it ever has before

Edi81

I think that what Deleted_User is saying is true. Mortgages are now a “loss leader” for lenders with the hope that they will make more money from cross selling other products.

remyroo

Thanks for the replies. Just another quick question how often do banks change their rates or is it a case of as and when.

LRmortgage

As and when.
Depends when they run out of certain tranches of money or if they haven’t sold enough of it.
Santander tends to review their rates for new business customers monthly or so (but not guaranteed to change them).

kingstreet

If there is a BOE rate cut, I would expect mortgage lenders to (where possible) increase their margin, rather than offer even lower rates.

Fixed rates at 1.3% for two years and 1.5% for five years should allow them to compete and still make a profit if they can get the swaps cheaper in future.