Are fixes usually above or below BoE base rate?

K_S

ruelle said:

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!

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

@ruelle As I understand it, mainstream lenders will have a tranche of funding for which their cost is fixed, and they will be able to continue lending at that rates until those funds are exhausted, even if swap rates rise in the meantime. Whether rates go up/down during the period of the fix, they'll still make money on it.

weddingringman

In 2013, having sold our first house at a marginal loss, we got a 5-year fix @ 5.19%. About 3 years later we’d improved the house and paid the ERC of about £3000 to get a fix at a lower rate. It represented a net saving so made sense. 

Needless to say I find it slightly bemusing that people are so shocked at current rates. It’s still cheap borrowing for an asset that will only increase in value in the long term.