to me a 10 year fix at 2.99% means the banks are convinced that rates will go down, and/or the margin on the rate will go down. IE in 2005 you could get .5% over base rate (I know I've got one) now they are all 3-4% over base, this is likely to change as the economy changes.
You could easily test your hypothesis by looking at historical rates and working out how often the banks 'win'.
I don't have a record of all the fixed rate deals they have offered, including the fees and exit fees so I have no idea.
Days of mortgages at 0.5% over base are long gone unless the present bank capital regime is significantly relaxed.
No it isn't, its a bet that the mortgage providers have a good handle on rates and set the fix so that over the term of the mortgage you pay more overall than if you had stayed on variable.Otherwise what is the advantage/gain to the provider of offering a fixed rate mortgage. Do they offer it to magnanimously help you save money?
Or you could look at the fixed as the 'product' and the variable as the 'bet' rather than the other way arround.
The banks offer both just like bookies offer both football teams in a match. Their aim is to set the rates/odds so that the market buys them in proportion, so that when the rates change the bank should still make money.
e.g a match with 100:1 odds of team A winning. The bookies offer odds of 99:1 and 1:101, hoping that for every person buying a £1 bet at 99:1 they sell £101 of bets at 1:101, so regardless of the outcome they make £1. Which is why you should never bet on an England game, as the odds are limiting the bookies losses as they'll sell a lot regardless of the odds. Same with local bookies on local teams.
Folowing that to the banking sector you should buy the unpopular product, as the bank will be discounting it to keep the distribution level between the products. But the clever people behind the scenes will be setting rates designed to attract just the right number of customers, and there'll be targets/limits for each product to keep it that way.
Best I have found is 1.5% above base which makes it more attractive. You do need 60% LTV, though.Considering that variable tracker mortgages are at an amount above the base rate (typically between 2.99 and 3.99 depending on deposit size) a fix at 4% over ten years is actually ok.
It does cost banks money to lend money.
They have to hold capital to back the loans that they make.
This capital comes in the form of equity and debt, which is not free.
http://en.wikipedia.org/wiki/Fractional-reserve_banking
http://en.wikipedia.org/wiki/Money_creation
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When I read the figure I would have to pay if interest rates went up by 1% I decided fixed sounded good. I do have four mortgages though! A 2% rise would kill me..
Our current mortgage is base rate + 0.5% tracker. For the additional borrowing we're taking out to move house we decided to hedge our bets and split the risk going with a fixed. So whether interest rates stay low or (more likely) go up we're in a win/lose situation.
