Some Predict a Drop in Interest Rates to 3.5% next year ... what do you think?

huttonc

Hi All,

I am in the same boat as everyone else, i'm trying to see whether to fix or not and then I saw this: -

From ''http://www.thisismoney.co.uk/interest-rates'': -
Howard Archer, Global Insight: 'Kate Barker's comments today [MPC member] strike us as dovish overall, suggesting that she could vote for an interest rate cut before too long. She believes that lending by UK banks will be constrained for a considerable period, with worrying implications for consumers, businesses and the housing market. Ms. Barker also observes that the upward pressure on inflation may heave eased since the beginning of August, helped by lower oil prices.


'The MPC seems to be increasingly leaning towards cutting interest rates before the end of this year. Arch dove David Blanchflower [and MPC member] has again this week called for interest rates to be cut sharply to try to avert prolonged serious recession, while a recent speech by Sir John Gieve suggested that he too is becoming worried about the downside risks to the economy and believes inflation will retreat markedly over the medium term.
'We are therefore becoming more confident in our belief that the Bank of England will cut interest rates from 5% to 4.75% in November. We suspect that a number of MPC members would be very reluctant to cut interest rates as soon as October given that inflation is likely to hit 5.0% in the near term and near-term inflation expectations are elevated.
'Further out, we expect interest rates to come down to 3.5% next year as extended very weak economic activity, rising unemployment and extended tight credit conditions increasingly dilute underlying inflationary pressures.'


I see similar predictions of 3 rate deductions by the middle of next year!!

With this in mind I am now totally confused :eek:

I have a £210000 mortgage (75% LTV) - 22 years remaining

I should be able to get a 3yr / 5yr fixed rate deal with my current provider Nationwide (rate of 5.68%) with no fees, though I am then caught out with the redemption penalties :mad: My only other worry is what if the house value has dropped in the valuers opinion below the 75% LTV.

Are there any mortgages out there where I could fix with a low / no redemption penalty, should things change in our favour in relation to interest rates?

There is always the risk when you wait for the lower rates, though in turn house prices have dropped as well and you can't get the lower rates anyway ... and you end up in the same boat

Any opinions appreciated!!

Thanks again,

Chris

Locoblade

From my limited understanding, you need to seperate fixed rate offerings from the Bank of England rate. Fixed rates are primarily set by the inter-bank lending rates (search for LIBOR rates), basically the rates charged for bulk loans between banks. Because of the credit crunch etc, banks are less keen on lending to each other so rates are if anything rising at the moment, so fixed rates have started to go back up or be withdrawn.

Even if the BoE rate drops, it doesn't directly have an effect on these rates, so fixed rates might stay the same or even rise.

If you're convinced by the predictions then the only option really is a tracker, which you can get fee free with no ERC and then jump onto a fix if they do drop.

m00

I'm not 100% up to date but the issue isnt the BOE base rates its the libor rates which are affecting the lenders rates to you and I.

So regardless of low BOE rates unless you have a BOE base rate tracker its unlikely that rates available to you or I will fall to 3.5%.

I know its a simplistic view but thats what I understand it to be?

m00

Locoblade wrote: »

From my limited understanding, you need to seperate fixed rate offerings from the Bank of England rate. Fixed rates are primarily set by the inter-bank lending rates (search for LIBOR rates), basically the rates charged for bulk loans between banks. Because of the credit crunch etc, banks are less keen on lending to each other so rates are if anything rising at the moment, so fixed rates have started to go back up or be withdrawn.

Even if the BoE rate drops, it doesn't directly have an effect on these rates, so fixed rates might stay the same or even rise.

If you're convinced by the predictions then the only option really is a tracker, which you can get fee free with no ERC and then jump onto a fix if they do drop.

heh great minds....!

Also with BOE base trackers - lenders will just increase the % they charge on top EG. I believe you can get a base tracker for +0.85. With lower BOE rates they might only offer a +1.5% rate.

Gorgeous_George

I think the BofE Base Rate (BBR) will fall.

Raising BBR would destroy any hope that the recession may be less than a disaster. LIBOR isn't the same as BBR but raising BBR would lift LIBOR and that would be disastrous (and politically unacceptable).

So, track for now and fix if rates fall.

GG

Locoblade

m00 wrote: »

I believe you can get a base tracker for +0.85

First Direct do +0.79% with no fees, or +0.49% with a £999 fee. Ive just signed up for the latter as Im not convinced fixed rates will drop significantly anytime soon so plan to be on this rate for a few years, if I overpay by the difference in the monthly between the two options I'll recoup the fee in about 2 years so probably worthwhile.

Gorgeous_George

Locoblade wrote: »

First Direct do +0.79% with no fees, or +0.49% with a £999 fee. Ive just signed up for the latter as Im not convinced fixed rates will drop significantly anytime soon so plan to be on this rate for a few years, if I overpay by the difference in the monthly between the two options I'll recoup the fee in about 2 years so probably worthwhile.

Nearly 3 years on and that seems to have been a great decision.

:beer:

GG