Folks,

Me and Mrs fwb have had an offer on a house accepted which is obviously really good news but would now be prudent to fix a rate deal? We've managed to put down a 30% deposit and with the way interest rates are at the moment, a probable new government and allegedly starting to come out of recession everything makes me think yes, fix it for 5 years then see where we are. I've seen a fixed deal @4.65% which seems pretty darn good. Is anybody else thinking the same at found a better deal maybe?
Any thoughts or advice gratefully received as always.

FWB

I fixed last year, probably would now too.

Shame rates aren't the best.

obviously you need to take into account arrangement fees, length of fix, early redemption penalties, extended redemption penalties and so on. Most people don't expect inflation to pick up any time soon due to the massive shrinkage in the economy over last 2 years but mortgage rates tend to rise in advance of BoE base rates increasing as markets tend to fret about inflation. Think about a collar / cap deal or just a good old fashioned discount that you can probably renew when it expires.

The best deal I could find was 2.75% over base but variable.
I'm also looking for a decent deal so it seems prudent to contribute…

That's not a bad fixed rate compared to how much over the base rate the SVR mortgages are now. It may cost a little more than a SVR over the first year or two but they will rise (the base rate can't stay a 0.5% for ever) and then you'll be better off.
To be honest when you first buy a house having a fixed rate you can afford to pay every month is the most important thing rather the chasing the cheapest discounted rate.

Are there any IFA's on here who may have an opinion or others thinking the same? I need to apply for one by Friday!! Thanks.

It also depends on how close you are to your disposable income limit.

If you earn £50k and your mortgage is £300 per month you may be happy to take gamble on keeping the current lowish rate for a while.

If you are paying 90% of your income on your mortgage then the security of knowing your payments wont change for a couple of years may be your priority.

(exagerated examples of course)

I've never taken a fixed deal in 25 years of various houses/mortgages (maybe thats why I've still got a mortgage…, but divorce etc).

Initially always went variable, as I wasn't prepared to pay a premium and/or bet on the market. About 7 years ago we went on to the '% over base' deals, very happy with them, especially our current 0.35% over base 😆

We looked at mortgages a few months ago (another property) and to be frank just wasn't prepared to pay the rates/fees on offer.

But to answer the question, go for the lowest variable on offer, anything else is just betting on the market (and you can be assured that the banks employ people to do just that when they are working out the fixed rates).

Also depends on your income vs mortgage – can you afford it when rates double (say)?

Lending rates are higher now relative to base rates so if base rates increase I wonder if lending rates would increase less? In the past 1% over base was about right I suppose for a variable deal but wouldn't get that now.

Fixing a deal is akin to gambling, and you know what they say about gambling "The house always wins". Bank set fixed rates to favour them based on their predictions on what mort rates will do in the future, are you smarter than gawd knows how many banking analysts?

So my advise is never fix.

So my advise is never fix.

YEAH, but everyone is different, and has different circumstances.

We've just remortgaged (Same lender – YBS) and fixed for 2 years again. It was only a few quid more a month than their best tracker deal, and IMO it would have been false economy to lash out on charges to change lenders.

IIRC we got 3.99% fixed for 2 years, on about a 65% mortgage.

In 2 years we look at it again. 🙂

There are various ways of looking at fixing.

First, if you want to be certain of your outgoings then fixing is the way to go. You are just as much taking a view on the market if you do not fix as if you do fix.

Second, you could try and ascertain the margin the lender is making. This would involve comparing the fixed rate you are being offered with the interbank swap rates for sterling which are published in the FT. You need to be careful to do this on a like for like basis as the published rates will often have different interest rate convention (payable monthly versus semi annually). Likewise the floating rate can be compared to interbank short term lending rate (LIBOR, which normally tracks Bank Base Rates so these can be used instead)to ascertain the margin. That gives you an idea how much you are paying over market rates. If you believe the market is always right, then there is an argument to go with the deal with the lower margin.

Finally you may have a view on interest rates and you could go with that.

Going through the same thing at the moment. The best Tracker we can find is coming out at £50 a month cheaper than the best Fixed we can find. Looking at where the base rate is at the moment it cant take much change for the Tracker to start costing more a month than the Fixed. I am thinking about going for the Fixed because we know that we can afford that every month for the period of the deal but god only knows what will happen with the Tracker.

Am I being a bit thick thinking this or is it a wise train of thought?

Your deal seems pretty good – just fixed myself for 5 years at 4.64% which I'm happy with (well, the wife is as she is very risk averse). Might seem relatively expensive given current (historically) low rates, but I reckon we could be in for some interesting times over the next few years (at least) and so am comfortable with it. Mind you, discounting the current low bank rate, for a 5 year fix I think it is pretty good. FWIW mine is with HSBC and needs you need at least 40% deposit.

And if you plan on paying down the loan early and reducing the term next time you re-mortgage you might look at the additional expense now as being offset a bit further down the line on some interest saved later?

I-Ache

No, that is probably wise as rates can only either stay where they are or go up.

I believe that the banks (along with the government) are taking the piss with margins. As said ours is 0.35% above base, and before that normally in the range 0.5-1.5% above. Now we are talking a range of 2.5-4.0% – or even higher based upon the last post!

No wonder the bonuses are so good.

Was on a mega tracker + 0.18% ended up being capped at 2.18% which is below the 3% cap in the terms. 2 year deal ran out and fixed for 3 years at 4.29% which is obviously a lot higher however when rates do rise these sort of deals will evaporate and we prefer knowing what is going to be going out as others have said. It is all a bit of a gamble but the way we looked at it rates probably will rise over the next 6-12 months so now's a good time to fix.

5 year swap rates are just below 3% so a 5 year fix at 4.64% implies a margin over market of 1.7% ish (have not checked the interest basis) so the margin is not as big as you think. (A margin of 0.35% is probably losing the bank money)

The best Tracker we can find is coming out at £50 a month cheaper than the best Fixed we can find. Looking at where the base rate is at the moment it cant take much change for the Tracker to start costing more a month than the Fixed

Exactly. Same as us, but I think it was about £35/month difference.
1 or 2 rises and you're quids in. 🙂

fwb2006 – Member
Are there any IFA's on here who may have an opinion or others thinking the same? I need to apply for one by Friday!! Thanks.

If you want a chat my website is in my profile along with contact details.

Chris.

5 year swap rates are just below 3% so a 5 year fix at 4.64% implies a margin over market of 1.7% ish (have not checked the interest basis) so the margin is not as big as you think. (A margin of 0.35% is probably losing the bank money)

But that implies that they are borrowing the money to lend, whereas now (and in the past before the chaos) they lent money that savers had with them. So the real margin ought to be saving rate vs lending rate…

In my opinion there's not much point going for a fixed rate if your aim is to save money over the fixed period. The lender will have a better view of what's going to happen in the next 2/3/5 years than you do and will have factored this into the rate. Some people will win but more will lose – you're betting against someone with an advantage over you.

The only reason to fix is if (like me) you like the stability of knowing what you commitments are for the period.

br – you have to compare like with like, there are plenty of five year deposits offering 3% or more whilst short term deposits offer a lot less. Any bank borrowing short term to fund a fixed rate loan is running an interest rate risk, which they will limit by hedging it through the swap market or by reducing by trying to attract longer term deposits. Whilst it is impossible to ascertain how a bank is funding itself it is possible to see the market rate in the swaps market. In simplistic terms, if they fund for less than this they are making money on the deposit side, if the lend for more than this then they are making money on the lending side. The participants in the market are much wider than banks so these rates are not rigged against the consumer.

(they are borrowing the money to lend from savers or the market, this may be counter intuitive but banks don't actually have any money.)

mcobie – Member
fwb2006 – Member
Are there any IFA's on here who may have an opinion or others thinking the same? I need to apply for one by Friday!! Thanks.

If you want a chat my website is in my profile along with contact details.

Chris.

You got mail!