Do banks fixed rates give any indication...
Discussion
Of what the base rate is realistically going to do.
Are the majority of people switching to fixed rates mortgages now the boe has given hints that the base ate is going to rise?
If banks are offering fixed rate mortgages for 5 years at less than 4% is it safe to assume the base rate is not going to rise over 3% for the next 5 years.
Do the banks know something we don't?
Are the majority of people switching to fixed rates mortgages now the boe has given hints that the base ate is going to rise?
If banks are offering fixed rate mortgages for 5 years at less than 4% is it safe to assume the base rate is not going to rise over 3% for the next 5 years.
Do the banks know something we don't?
Yes and no! It is just the collective best guess of the financial system.
If the bank is offering a 5 year fixed rate mortgage at say 4% then it is likely that they are able to sell 5 years fixed rate bonds at 3% (or get their customers who are savers to put money into a 5 years fixed rate saving account offering 3%) and make money on the difference.
As long as there are enough people who are willing to receive 3% interest fixed for 5 year on their saving (because they believe base rate will remain low) then there will be a source of fund for the bank to lend at a fixed mortgage rate of 4% over 5 years.
If the bank is offering a 5 year fixed rate mortgage at say 4% then it is likely that they are able to sell 5 years fixed rate bonds at 3% (or get their customers who are savers to put money into a 5 years fixed rate saving account offering 3%) and make money on the difference.
As long as there are enough people who are willing to receive 3% interest fixed for 5 year on their saving (because they believe base rate will remain low) then there will be a source of fund for the bank to lend at a fixed mortgage rate of 4% over 5 years.
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