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Fixed Rate Mortgages

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The wife works for RBS so we get a staff mortgage. Rates for 2 yr and 5 yr 90% deals up again today, now a mouthwatering 5.29% and 6.39%.

http://www.yourbankrbs.co.uk/uk/mortgages/...x#_5_year_rates

Libor sitting around 0.6%, base rate at 0.5%. When Libor and Base rate inevitably start rising do these comapnies maintain the profit margin (likely) or do their rises lag behind, reducing their margin (unlikely). How can the recovery happen without first time buyers and how can they afford interest rates upwards of 6% on inflated house prices?

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The wife works for RBS so we get a staff mortgage. Rates for 2 yr and 5 yr 90% deals up again today, now a mouthwatering 5.29% and 6.39%.

http://www.yourbankrbs.co.uk/uk/mortgages/...x#_5_year_rates

Libor sitting around 0.6%, base rate at 0.5%. When Libor and Base rate inevitably start rising do these comapnies maintain the profit margin (likely) or do their rises lag behind, reducing their margin (unlikely). How can the recovery happen without first time buyers and how can they afford interest rates upwards of 6% on inflated house prices?

Banks, when they issue fixed rate loans generally don't take the risk of short-term interest rates (base & Libor) fluctuating.

When a bank issues a 5 year fix, they will try to arrange a fixed cost structure, so that if short-term rates surge, they are protected. Normally, they will do this, by borrowing from depositors and money markets at LIBOR - but then using an interest rate derivative (interest rate swap) to control costs.

An interest rate swap, is as its name suggests, an agreement where 2 parties agree to swap interest streams. One party may have borrowed money at fixed rate, but would prefer variable repayments (*); and the other may have borrowed money at variable rate, but would prefer fixed repayments. (The same also applies, if one or both has deposited money at fixed or variable rates). The market price of interest rate swaps can be found as the 'swap rates' - e.g. the UK 5 year swap rate is 3.4% at present.

As swap rates are based on base rates,but money is normally borrowed at LIBOR, if a bank wanted to arrange a fixed cost borrowing, it would end up paying the 5 year swap rate + difference between LIBOR and base - so around 3.5%.

(*) - Note. Why would a big company prefer variable debt repayments, when fixed rates (which are the normal way of large borrowing via issuing bonds) are the standard and are preferable because they allow prediction of cashflow and business expenses? The reason is because if a company issues a bond at a high fixed rate, but interest rates fall - the bonds show a capital gain (people will pay a lot more capital, to get the high fixed income). This can make it prohibitively expensive for the company to repay the debt early (by buying the bonds back from the market) - it may also need to be recorded as a loss on the accounts (depending on the relevant regulations). As a result, it's very common for companies who have borrowed a lot fixed-term, to use interest rate swaps to protect themselves against at least some of these fluctuations in capital value.

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Currently negiotiating with RBS over mortgage deal - just been informed by their mortgage centre that their rates have all gone up today - nothing on the website yet :o

oops - didn't see the other post mods please delete!!!

Sorry.

Edited by hellsbells

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Currently negiotiating with RBS over mortgage deal - just been informed by their mortgage centre that their rates have all gone up today - nothing on the website yet :o

oops - didn't see the other post mods please delete!!!

Sorry.

Yeeeeeeeesssssssssssssssssssssssssssssss!!!!!!!!!!!!!!!

I just fixed there 3 weeks ago.

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Banks, when they issue fixed rate loans generally don't take the risk of short-term interest rates (base & Libor) fluctuating.

When a bank issues a 5 year fix, they will try to arrange a fixed cost structure, so that if short-term rates surge, they are protected. Normally, they will do this, by borrowing from depositors and money markets at LIBOR - but then using an interest rate derivative (interest rate swap) to control costs.

An interest rate swap, is as its name suggests, an agreement where 2 parties agree to swap interest streams. One party may have borrowed money at fixed rate, but would prefer variable repayments (*); and the other may have borrowed money at variable rate, but would prefer fixed repayments. (The same also applies, if one or both has deposited money at fixed or variable rates). The market price of interest rate swaps can be found as the 'swap rates' - e.g. the UK 5 year swap rate is 3.4% at present.

As swap rates are based on base rates,but money is normally borrowed at LIBOR, if a bank wanted to arrange a fixed cost borrowing, it would end up paying the 5 year swap rate + difference between LIBOR and base - so around 3.5%.

(*) - Note. Why would a big company prefer variable debt repayments, when fixed rates (which are the normal way of large borrowing via issuing bonds) are the standard and are preferable because they allow prediction of cashflow and business expenses? The reason is because if a company issues a bond at a high fixed rate, but interest rates fall - the bonds show a capital gain (people will pay a lot more capital, to get the high fixed income). This can make it prohibitively expensive for the company to repay the debt early (by buying the bonds back from the market) - it may also need to be recorded as a loss on the accounts (depending on the relevant regulations). As a result, it's very common for companies who have borrowed a lot fixed-term, to use interest rate swaps to protect themselves against at least some of these fluctuations in capital value.

Yesssssssssssssssssssssssssss!!!

Fixed at 4.29% there last month on 25 year 90%.

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C&G are offering SVR at BOEBR+2% for those holding a 40% deposit.

Like me.

That's great! Thanks.

I have an RBOS buy to let mortgage for another property with a 45-50% deposit. Any good buy to let rates?

Edited by judas

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The fixed rate mortgage market is in my view the best sign of what is going to happen to the housing market.

There is (virtually) no fixed rate market in this country.

You can get 2 year fixes, but 2 year fixes on a 25 year product are pointless - may as well get a cheaper tracker for all the protection you get.

5 year fixes might be worth it if you're young and expecting your income to go up. But they are now only available at crazy spreads over Base/Libor. And again on a 25 year mortgage aren't that much protection.

If you want to fix you need at least 10 years to be worth doing and these are, with as far as I can tell just 2 exceptions, completely non-existent. Anything over 10 years (15/25 - absolutely standard in all other countries (and in fact much cheaper than our poxy 5 year fixes!)) - DOES NOT EXIST AT THE MOMENT IN THE UK.

What does this mean? It means if you want to buy a house, unless you have cash, you are obliged to gamble your financial future on rates remaining low. You could well get lucky given the fiscal tightening that will soon hit. But one look at the yield curve and its clearly a massive massive gamble.

Some of the extremists on here would think that this is a conspiracy so that people are forced to beome "debt slaves". I'm (almost) prepared to think they might be right. Even if not anyone's actual intention, this will of course be the effect on anyone who overpays at the current moment.

More simply however: the fact is that short term stimulus is massively steepening the yield curve. The offered rates simply reflect this - but banks know that the effect will be inflation and interest rates rising in the medium term, really quite dramatically. Nevertheless it is quite astonishing that the position is now so dramatic that proper long term fixes are simply no longer available at any price.

And, as everyone on here knows, that means that the medium term outlook for house prices is absolutely dire. I'm hoping they keep to their 2% CPI Target - as this will mean that, unlike in the 70s and 80s, the crash will involve nominal and not just real prices sliding. Not sure I trust the BOE on this, but on balance I find I'm right more often than not when I take people at their word.

Do you remember a few years back Gordon going on about bringing more long-term fixed rates to the market? This is probably his most laughable statement of all.

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The fixed rate mortgage market is in my view the best sign of what is going to happen to the housing market.

...

Do you remember a few years back Gordon going on about bringing more long-term fixed rates to the market? This is probably his most laughable statement of all.

Great first post, thank you.

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The fixed rate mortgage market is in my view the best sign of what is going to happen to the housing market.

There is (virtually) no fixed rate market in this country.

...

Good post. Welcome.

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I was shocked to look at their website and see RBS was still giving 5x salary. Back in the day it was 3.5 or 4 if you were brother of the bank manager. This increase in multiples obviously increases people`s ability to lend and puts upwards pressure on prices. Hope to see these drop to more responsible levels soon.

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The fixed rate mortgage market is in my view the best sign of what is going to happen to the housing market.

There is (virtually) no fixed rate market in this country.

You can get 2 year fixes, but 2 year fixes on a 25 year product are pointless - may as well get a cheaper tracker for all the protection you get.

Well considered. Yours and ChumpusRex's post both a decent read. However, most people only keep the same house / flat for seven years, so why fix the loan for 25?

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The wife works for RBS so we get a staff mortgage. Rates for 2 yr and 5 yr 90% deals up again today, now a mouthwatering 5.29% and 6.39%.

http://www.yourbankrbs.co.uk/uk/mortgages/...x#_5_year_rates

Libor sitting around 0.6%, base rate at 0.5%. When Libor and Base rate inevitably start rising do these comapnies maintain the profit margin (likely) or do their rises lag behind, reducing their margin (unlikely). How can the recovery happen without first time buyers and how can they afford interest rates upwards of 6% on inflated house prices?

mouthwatering=eyewatering?

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The wife works for RBS so we get a staff mortgage. Rates for 2 yr and 5 yr 90% deals up again today, now a mouthwatering 5.29% and 6.39%.

http://www.yourbankrbs.co.uk/uk/mortgages/...x#_5_year_rates

Libor sitting around 0.6%, base rate at 0.5%. When Libor and Base rate inevitably start rising do these comapnies maintain the profit margin (likely) or do their rises lag behind, reducing their margin (unlikely). How can the recovery happen without first time buyers and how can they afford interest rates upwards of 6% on inflated house prices?

5 year fix rates are set by looking at the 5 year swap market - it doesn't really matter what Libor and Base Rate are. Yours is a common mis-conception peddled by personal finance 'journalists' from tabloids.

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http://www.swap-rates.com/UKSwap_extended.html

I fixed with natwest (a sub of theirs) earlier this month @ 5.09 for 5 years, 80% LTV, based on a 2007 valuation. Figured they'd go up so got in early. Looks like RBS still have their deals for existing customers at the same rate (as do natwest)

http://www.rbs.co.uk/personal/mortgages/g2...rate.ashx?tab=3

H

Edited by 5lab

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Personally i never can get my head around the idea of a fixed rate, over 2 years, or 5 years. THATS NOT FIXED, Its variable as it changes in 5 years. I see no reason why they cant offer 25 year fixed rates at 1%.

fixed should be fixed for the life time of the mortgage giving certainty about repayment amounts.

do variable rates really vary? interest rates have been steady for a long while, and when they went down from 5% they were steady for a long while before that.

engineered for evil.

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I just got a 2 year fixed at 3.69% with Natwest

Two years is nothing when a repayment mortgage is at least 25 years....I would recommend you save as much as you can to pay off a lump sum when that rate ends....when fixed rates start rising I would say it is telling you that in the long term rates will be higher than they are today...10 years ago all the banks wanted to do was lend you as much as you could take on few questions asked, today things are quite different they are trying to build up their reserves/capital, what now is important to them is savings and low risk loans to the right people. Very different to how it used to be before when they used to bundle it up and to sell off bad lending to anyone that would buy it.

Once bitten twice shy. ;)

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Guest Daddy Bear

10 year fix 4.99% in May 09

negotiated 32% off peak price of house

HPI has risen ever since.

CASH WILL BE TRASH

MASSIVE INFLATION HERE WE COME

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10 year fix 4.99% in May 09

negotiated 32% off peak price of house

HPI has risen ever since.

CASH WILL BE TRASH

MASSIVE INFLATION HERE WE COME

You really are an annoying parrot...

Why don't you STHU and live your life rather than come on here and PRETEND to be some kind of saviour?

You seem to use Ouroboros as a visual aid to hyper-inflation:

ongodhedges.jpg

Well here is a visual aid of what many on here think of you...

head-up-ass.jpg

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