5yr fixed deals below BOE rate

muffinek

Hello

I have noticed recently there are 5yr fixed deals available that are below BOE current rate ie I see some at 3.85% for 60%LTV. 

I am not sure how to read this. I secured Barclays tracker 0.6% above the rate for 5yrs and very soon I need to make a final decision whether to go ahead with it or go for a fixed deal. 

I am not exactly sure how fixed rates work in relation to BOE rate but I would imagine they would need to be above the rate for banks to make money. If I am right would this mean the market expects BOE to be at least low to mid 3% over the next 5yrs?

I am.just trying to figure out what's most financially viable option over 5 year period as currently tracker looks pretty expensive 4.6% vs 3.85% although I appreciate all depends on which directions rates will go and how fast and no one has a crystal ball!

Nailer99

They are even cheaper than that. Platform offering 3.71% for 5-year fixes today. 

I think your assessment is correct. However, we live in an uncertain world. The fix buys you security. I’m current holding a BOE +0.14% 2 year tracker offer, but I’m sorely tempted by these new fixes. There are even 2 year fixes at close to 4% now. 

Nailer99

They are even cheaper than that. Platform offering 3.71% for 5-year fixes today. 

I think your assessment is correct. However, we live in an uncertain world. The fix buys you security. I’m current holding a BOE +0.14% 2 year tracker offer, but I’m sorely tempted by these new fixes. There are even 2 year fixes at close to 4% now. 

ACG

Banks get their money from various places. But the general consensus is that rates will drop in around 2 years time. 
Obviously nobody knows so like anything it is a gamble. 

housebuyer143

Bank rates tend to follow swap rates more closely then BBR, so that's why it's lower and why rates went haywire at the mini budget. The long term predictions are that the base rate will come down. 
I'm still going ahead with my tracker for this reason. 

muffinek

I fully understand and appreciate there is no definitive answer what rates will be over the next 5yrs but are there any 'reliable' industry sources I could have a look at to understand what are predictions. 

The way I see it the base rate would need to drop below 3.2% to match current fixed rates on offer. I guess correct way of looking and the tracker rate vs fixed is when the rate is expected to drop to that level ie if that was year 4 then I am potentially better off going with fix but then if it was year2 and then following years bit lower than I am potentially better off sticking with tracker. 

kingstreet

Swap rates are used to fund mortgage products. These are based on a view of the interest rate futures, rather than the interest rates now. There is usually no connection between current base rate and a fixed rate mortgage product.

housebuyer143

muffinek said:

I fully understand and appreciate there is no definitive answer what rates will be over the next 5yrs but are there any 'reliable' industry sources I could have a look at to understand what are predictions. 

The way I see it the base rate would need to drop below 3.2% to match current fixed rates on offer. I guess correct way of looking and the tracker rate vs fixed is when the rate is expected to drop to that level ie if that was year 4 then I am potentially better off going with fix but then if it was year2 and then following years bit lower than I am potentially better off sticking with tracker. 

If anyone had that info they would be really wealthy. No one can tell you because the government could do something stupid tomorrow and it's all changed again 

philipo51617

muffinek said:

Hello

I have noticed recently there are 5yr fixed deals available that are below BOE current rate ie I see some at 3.85% for 60%LTV. 

I am not sure how to read this. I secured Barclays tracker 0.6% above the rate for 5yrs and very soon I need to make a final decision whether to go ahead with it or go for a fixed deal. 

I am not exactly sure how fixed rates work in relation to BOE rate but I would imagine they would need to be above the rate for banks to make money. If I am right would this mean the market expects BOE to be at least low to mid 3% over the next 5yrs?

I am.just trying to figure out what's most financially viable option over 5 year period as currently tracker looks pretty expensive 4.6% vs 3.85% although I appreciate all depends on which directions rates will go and how fast and no one has a crystal ball!

Have the same Barclays deal ready to sign, so also weighing up what's best to do now.

News recently saying BOE could peak next year at 4.5%, but crystal ball is how long they stay at 4.5%.  

If BOE goes to 4.5%, means will be paying just short of £950 a month, whereas can get a 3yr fixed for £865, or 5yr for £830

The beauty of the Barclays deal was the No early repayment fee so could switch anytime, but the £999 fees dampen that deal quite a bit!

We're swaying towards fixing for that certainty....and then just not listen to any news on rates for the next 3 years!

muffinek

4.5% would mean paying 5.1% for this tracker. This would need to be v short lived and then we would need to see some decent rates reduction to make it better overall than current fixes even 2yr. My mortgage advisor suggested perhaps going with Barclays 2yr tracker as it is significantly lower than 5yr deal. 

Nailer99

I think the 5-year tracker is only worth considering vs the 2-year if your mortgage is quite small (so the saving of new arrangement fees over the period is significant) or you are concerned that the likely drop in house prices would see you struggling to get a decent mortgage rate in 2-years time.