Are fixes usually above or below BoE base rate?

adamL

Hi, 

I've just accepted a 3.93% 5 year fix - which I feel is ok. It's a bit of a shock coming off a 1.09% fix but that's life. I've got until 1st November to make sure nothing better appears on the market. And the fix has an end date of July 2028 so effectively by the time the fix kicks in, it's only about 4.5 years. 

Anyway, the question I've really got is....

Have fixes historically been below or above bank of England rates? 3.93% is quite a bit below today's BoE rate.

I want to run a few calculations.

Thank you

housebuyer143

They are based on swap rates which are easily over 4 at the moment so you have a good deal. Rates are on the way up again as of last week.

K_S

adamL said:

Hi, 

I've just accepted a 3.93% 5 year fix - which I feel is ok. It's a bit of a shock coming off a 1.09% fix but that's life. I've got until 1st November to make sure nothing better appears on the market. And the fix has an end date of July 2028 so effectively by the time the fix kicks in, it's only about 4.5 years. 

Anyway, the question I've really got is....

Have fixes historically been below or above bank of England rates? 3.93% is quite a bit below today's BoE rate.

I want to run a few calculations.

Thank you

@adaml A rough indicator for 2/3/5yr fixed mortgage rates would be the 2/3/5yr Sonia Swap rates, which indicate what the market expectations are for rates to be at in 2/3/5 years.

In recent months, leading 5 year fixed rates have been slightly below the swap rates at the time, as mainstream lenders are jousting to keep their rates competitive and typically they have the best access to cheap funds.

https://www.chathamfinancial.com/technology/european-market-rates

adamL

Thank you very much. Will keep an eye on that link over the next few months.

Edi81

I’d be biting their hand off for that rate!

ruelle

K_S said:

adamL said:

Hi, 

I've just accepted a 3.93% 5 year fix - which I feel is ok. It's a bit of a shock coming off a 1.09% fix but that's life. I've got until 1st November to make sure nothing better appears on the market. And the fix has an end date of July 2028 so effectively by the time the fix kicks in, it's only about 4.5 years. 

Anyway, the question I've really got is....

Have fixes historically been below or above bank of England rates? 3.93% is quite a bit below today's BoE rate.

I want to run a few calculations.

Thank you

@adaml A rough indicator for 2/3/5yr fixed mortgage rates would be the 2/3/5yr Sonia Swap rates, which indicate what the market expectations are for rates to be at in 2/3/5 years.

In recent months, leading 5 year fixed rates have been slightly below the swap rates at the time, as mainstream lenders are jousting to keep their rates competitive and typically they have the best access to cheap funds.

https://www.chathamfinancial.com/technology/european-market-rates

Does this mean that mortgage rates will stay at the 4-5% mark for the next decade according to swap rates then? Are Sonia swap rates usually accurate in predicting rates over the years?

K_S

@ruelle They are a very rough proxy, and simply indicate what the market thinks at a particular point in time, I wouldn't assign any particular predictive value to to.

As you can see from the 5yr swap rates on 26 Apr (a little above a month ago), it's significantly less than what it is today which simply reflects that expectations have changed significantly from a month ago. And one year ago, it was a lot less. 

ruelle said:

K_S said:

adamL said:

Hi, 

I've just accepted a 3.93% 5 year fix - which I feel is ok. It's a bit of a shock coming off a 1.09% fix but that's life. I've got until 1st November to make sure nothing better appears on the market. And the fix has an end date of July 2028 so effectively by the time the fix kicks in, it's only about 4.5 years. 

Anyway, the question I've really got is....

Have fixes historically been below or above bank of England rates? 3.93% is quite a bit below today's BoE rate.

I want to run a few calculations.

Thank you

@adaml A rough indicator for 2/3/5yr fixed mortgage rates would be the 2/3/5yr Sonia Swap rates, which indicate what the market expectations are for rates to be at in 2/3/5 years.

In recent months, leading 5 year fixed rates have been slightly below the swap rates at the time, as mainstream lenders are jousting to keep their rates competitive and typically they have the best access to cheap funds.

https://www.chathamfinancial.com/technology/european-market-rates

Does this mean that mortgage rates will stay at the 4-5% mark for the next decade according to swap rates then? Are Sonia swap rates usually accurate in predicting rates over the years?

ruelle

K_S said:

@ruelle They are a very rough proxy, and simply indicate what the market thinks at a particular point in time, I wouldn't assign any particular predictive value to to.

As you can see from the 5yr swap rates on 26 Apr (a little above a month ago), it's significantly less than what it is today which simply reflects that expectations have changed significantly from a month ago. And one year ago, it was a lot less. 

ruelle said:

K_S said:

adamL said:

Hi, 

I've just accepted a 3.93% 5 year fix - which I feel is ok. It's a bit of a shock coming off a 1.09% fix but that's life. I've got until 1st November to make sure nothing better appears on the market. And the fix has an end date of July 2028 so effectively by the time the fix kicks in, it's only about 4.5 years. 

Anyway, the question I've really got is....

Have fixes historically been below or above bank of England rates? 3.93% is quite a bit below today's BoE rate.

I want to run a few calculations.

Thank you

@adaml A rough indicator for 2/3/5yr fixed mortgage rates would be the 2/3/5yr Sonia Swap rates, which indicate what the market expectations are for rates to be at in 2/3/5 years.

In recent months, leading 5 year fixed rates have been slightly below the swap rates at the time, as mainstream lenders are jousting to keep their rates competitive and typically they have the best access to cheap funds.

https://www.chathamfinancial.com/technology/european-market-rates

Does this mean that mortgage rates will stay at the 4-5% mark for the next decade according to swap rates then? Are Sonia swap rates usually accurate in predicting rates over the years?

Ah, I see! Thanks for the explanation. I guess at the end of the day no one really knows where rates will be in 5 years!

Strummer22

ruelle said:

K_S said:

adamL said:

Hi, 

I've just accepted a 3.93% 5 year fix - which I feel is ok. It's a bit of a shock coming off a 1.09% fix but that's life. I've got until 1st November to make sure nothing better appears on the market. And the fix has an end date of July 2028 so effectively by the time the fix kicks in, it's only about 4.5 years. 

Anyway, the question I've really got is....

Have fixes historically been below or above bank of England rates? 3.93% is quite a bit below today's BoE rate.

I want to run a few calculations.

Thank you

@adaml A rough indicator for 2/3/5yr fixed mortgage rates would be the 2/3/5yr Sonia Swap rates, which indicate what the market expectations are for rates to be at in 2/3/5 years.

In recent months, leading 5 year fixed rates have been slightly below the swap rates at the time, as mainstream lenders are jousting to keep their rates competitive and typically they have the best access to cheap funds.

https://www.chathamfinancial.com/technology/european-market-rates

Does this mean that mortgage rates will stay at the 4-5% mark for the next decade according to swap rates then? Are Sonia swap rates usually accurate in predicting rates over the years?

No, look how different the rates were a year ago (rightmost column). 5-year rates were about 2.1%.

In May 2022 you might have asked whether mortgage rates would stay around the 2% mark for the next decade according to swap rates. 

There's no certainty as to whether, in 1, 2, 5 or x years the rates will have gone up, down, or stayed the same. Hindsight is a wonderful thing and foresight is even better, if you can find someone who has it!

ruelle

Strummer22 said:

ruelle said:

K_S said:

adamL said:

Hi, 

I've just accepted a 3.93% 5 year fix - which I feel is ok. It's a bit of a shock coming off a 1.09% fix but that's life. I've got until 1st November to make sure nothing better appears on the market. And the fix has an end date of July 2028 so effectively by the time the fix kicks in, it's only about 4.5 years. 

Anyway, the question I've really got is....

Have fixes historically been below or above bank of England rates? 3.93% is quite a bit below today's BoE rate.

I want to run a few calculations.

Thank you

@adaml A rough indicator for 2/3/5yr fixed mortgage rates would be the 2/3/5yr Sonia Swap rates, which indicate what the market expectations are for rates to be at in 2/3/5 years.

In recent months, leading 5 year fixed rates have been slightly below the swap rates at the time, as mainstream lenders are jousting to keep their rates competitive and typically they have the best access to cheap funds.

https://www.chathamfinancial.com/technology/european-market-rates

Does this mean that mortgage rates will stay at the 4-5% mark for the next decade according to swap rates then? Are Sonia swap rates usually accurate in predicting rates over the years?

No, look how different the rates were a year ago (rightmost column). 5-year rates were about 2.1%.

In May 2022 you might have asked whether mortgage rates would stay around the 2% mark for the next decade according to swap rates. 

There's no certainty as to whether, in 1, 2, 5 or x years the rates will have gone up, down, or stayed the same. Hindsight is a wonderful thing and foresight is even better, if you can find someone who has it!

Ha! I do feel like I'm desperately trying to understand the economy and how it affects mortgages to gain a little foresight and just getting very confused. 

Although current mortgage rates seem low compared to the Sonia Swap rates...

Strummer22

ruelle said:

Although current mortgage rates seem low compared to the Sonia Swap rates...

That tells me that mortgage providers (or at least, the one with a 3.93% 5 year fixed product) think that the swap rates aren't an accurate reflection of what interest rates will do over the next 5 years or so. Effectively, they're betting that the swap rates are over-estimating interest rates over the next 5 years, and they will still make money on a 3.93% rate over the 5 year life of the fix.