What's the highest anyone can forsee interest rates reaching in the next 20 years?

Since 1997 interest rates have fluctuate much less than previously. This (in my opinion) has been for two reasons: firstly the general economic climate; secondly we have an independent and credible monetary policy. My argument is therefore that smaller changes in rates are needed to have the same impact. The effectiveness is increased by the rise in debts etc over the same period. You may therefore reasonably expect the repo rate to stay within a fairly narrow band. Hazarding a guess of that range, I would suggest between 2-8%.

However, the MPC has to react to (as yet) unknown variables which could affect its inflation target. This makes forecasting very difficult, especially over a long horizon. A useful thing to do may be to read the bank of england's inflation report which I think shows their inflation expectations for 3 years, giving some indication of the future path of interest rates.

NB repo rates have been at 4.5% since Aug 05

I would think that rates would not go anywhere near the 15% or so that hit about 10-15 years ago now (7% would be a high I would expect - this is only based on a feeling for the way the economy is going (both ours and other international economies). As Imelda said, something like a bird flu epedemic, more oil price rises (or something like a terrorist attack on oil pipelines) could lead to worldwide rises.

Hope that makes things as clear as the muddiest of muddy puddles :rotfl:

Let me get my crystal ball out

I don't really have any words of wisdom but we recently took out a 10 year fixed rate mortgage (4.89%). We took this out to ensure that if the interests rates went mad we wouldn't be affected too much and felt that the 4.89% wouldn't fall that much further.

blakea8k wrote:

Thanks for the replies, i just wondered if we would see the highs of 15% or more again. So basically if i can afford to pay 7-8% i will be ok.

I think you just have to be sensible in your borrowing and throw as much money as you can afford at the mortgage. Problems arise when people are stretched to borrow enought to buy a relatively inexpensive home and then the interest rate goes up or they lose income for some reason.

I can remember 15% too, in fact it's partly because of the high interest rates in previous years that we paid off our mortgage early, we kept allocating the same amount to the mortgage pot even when the rate dropped.

Good luck.;)

Believe Sultana's hit the nail on the head.

I don't believe the world has changed such that 15% could never happen again. However, there doesn't seem to be much prospect in the near term. In the longer term, well interest rates are all relative to inflation, so if rates are high there's a good chance that your salary will have moved up as well. Couple this with having a lower outstanding balance assuming you've gone for a repayment mortgage, and the impact will be diminished. Diminished, mind, not removed.