Rising rates????

katykitten · 4 January 2010 at 10:18PM

i have a strong feeling that rates are going to rise in the next few months (also my brother is an ex city banker/accountant and he feels the same) - and i would really appreciate some guidnace through the mortgage maze from an independant advisor. my dilema is this i am a single mum and 50/50 self employed and employed by local city council, my 'on paper' (i have a great accountant) salary is just over 20K but i have a number of other sources of income which take it to over 30K however the last time i tried to remortgage 3 years ago non of the banks/building societies would take my self employed income into account as i had recorded a loss the year before. my home is worth about £400k and mortgage around 70k, currently on repayment and overpaying every few months whilst i can afford it. Am currently with Abbey due to aforementioned problems with remort several years ago. Should i try again to remortgage with another bank/b.soc and go for a fixed rate whilst they are low, a tracker also looks appealing as does a flexible rate as i have some savings (10k) which i could offset - along with many on this site i get very confused by whats on offer so mininal options would suit me best if poss!! Many thanks to any independant mortgage advisors out there who could point me in the right direction however vague!!!

Radiantsoul · 4 January 2010 at 10:24PM

With that much equity and a few years of accounts you really ought to have the pick of the market.
You need to say what rate you are currently on, if you have to pay a penalty for leaving and if so when this ends.
In general interest rates do have to rise, but I am not sure that fixed rates will necessarily rise in step with base rates.

katykitten · 4 January 2010 at 10:40PM

thanks for replying, my repayment rate with abbey is currently 4.24% and the current term is 13 years. Its not a fixed deal and the rate is variable so no penalty if i leave - my concern is that my accountant is so skillfull (:j) that it barely shows that i make much of a profit but i have several other sources of income such as child maintenance of £400 per month - would another lender take this into account combined with my great payment record with abbey?

Radiantsoul · 4 January 2010 at 10:48PM

You are probably only going to pay £3-4k per year and so I can't see that an income of £20k would be a major problem. I assume that is your net profit?

kinglewis · 4 January 2010 at 10:51PM

How old are your children and when is the maintenance paid till?

The lenders will take this into account when looking at your mortgage term. Some will accept it though.

katykitten · 4 January 2010 at 10:54PM

£20k is net yes - £400 will reduce to £200 in nov but i anticipate increase in income before this time as well so will cancel out - are there any mortgages around at the moment that you would recommend and is it best to go for fixed, offset or tracker if i think rates are going to rise?

Radiantsoul · 4 January 2010 at 10:56PM

The decision on the type of mortgage really depends on your personal circumstances and attitude towards risk. I tend to prefer fixed rates, but I am rather risk adverse. I am not sure if it is really a matter of "beating" the market.

katykitten · 4 January 2010 at 10:58PM

just want to get it paid off as quickly as possible as i hate being in debt!!

davidla · 5 January 2010 at 5:17PM

If you think rates will rise then a tracker probably wouldn't be a good idea.

Gorgeous_George · 5 January 2010 at 7:21PM

Be careful. A great accountant does not take the responsibilty to HMRC from you. I wouldn't trust an ex-city banker any more than i would a current city banker.

If you think rates will rise why would you think a tracker looks appealing?

Is that he ex-city banker talking?

A fixed or capped rate is good when rates are low. A tracker is good when rates peak. I think rates will remain below 3% for at least 5 years. Inflation may well be counteracted by reversing the QE programme rather than by raising interest rates - even if we are unfortunate enough to have a Tory government by the summer.

GG

princeofpounds · 5 January 2010 at 7:44PM

Rates are indeed likely to rise. If you look at the UK yield curve (essentially the predicted path of future interest rates) it is rising quite steeply.

This is because the market expects monetary policy (i.e. short term interest rates) to be held low for the near term, and inflationary pressures to build in the future. Interest rates need to account for inflation as it builds so that the lender gets a real return on their money. So interest rates can be low at the moment but have to be higher with time.

The yield curve is basically the market's best guess at this development (although it can be distorted by various things the bank of england have been doing recently).

Now the market can be wrong. In fact, it usually is to some degree, although an individual has no special knowledge over the market (unless they are part of the bank of england monetary policy committee perhaps!). But it is almost a certainty that rates will rise because they are just so low. The question is more when - if we have the Japan experience it might not be for a decade. If we have the Zimbabwe experience it might be very soon. Probably the truth will be somewhere in between.

When you get a fixed mortgage, the provider basically prices it from the predicted interest rates in the yield curve and adds a profit margin on top. So from the point of view of the market you should do roughly equally well with either option (if your time horizon is only a certian number of years you can fix for). The cost may also differ a bit depending on how many people are prepared to finance that kind of mortgage.

Reality will favour one outcome over the other, but frankly if you or I knew exactly what it was we could be very rich very easily - nobody really knows.

Rising rates????

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