Your prediction on the bank of England interest rate

poppy10 wrote: »

Down short term.

Much higher long term - could see the 12-15% rates we say back in the late 80s/early 90s. The BoE has just flooded the money market with £10billion - by just printing all that extra money they have devalued the pound, leading o major inflation problems in the medium to long term.

Blimey that could definatley supper my plans of getting a place once im debt free

Lanmonkey, ask me again in a couple of years and I'll give you a more accurate prediction than I can now!

poppy10 wrote: »

Not really. High inflation is good for you, as it will mean the value of your remaining debt will be eroded, so you'll be able to pay it off quicker. Plus house prices will fall as a result of higher interest rates.

Your mortgage payments on a £200,000 house at 6% are £1000 per month.
If prices crash, that house may be only £120,000 - so even at 10% interest rates, you'd still only be paying £1000/month, but would have much less to pay overall.

But, if you already have a £200,000 mortgage and the house price crashes you will be paying £1800 per month for something that is worth a fraction of what you paid for it!

Personally I think rates will hover around current levels for the next couple of years - beyond that no idea but I'd be surprised (and struggling!) if we see a return to double digit rates.

poppy10 wrote: »

Not really. High inflation is good for you, as it will mean the value of your remaining debt will be eroded, so you'll be able to pay it off quicker. Plus house prices will fall as a result of higher interest rates.

Your mortgage payments on a £200,000 house at 6% are £1000 per month.
If prices crash, that house may be only £120,000 - so even at 10% interest rates, you'd still only be paying £1000/month, but would have much less to pay overall.

I agree high inflation is good for the borrower, but not for the reason that poppy10 stated. The mortgage repayment is not linked to your house value. However, the afordability of your repayment is directly linked to your salary, and high inflation means higher pay settlements. So the 4 times you salary you borrowed becomes 6 weeks salary by the time you have to pay it back. That's why endowments and interest-only mortgages looked so attractive back in the 1980s. Even if the endowment didn't pay out, the capital would be nothing after 25 years - so we all thought.