interest rates and house price direction 2010/11

puddy

its horses for courses,,,, i personally have hardly ever been without a fixed rate, i go from one to the next without a break. my current one is a 10 year at 4.98, im 2 years into it,,, so i know what my outgoings are, they are not going to change for 8 years. BUT it also means i have been green with envy at these people on trackers and SVRs at extremely low rates, but thats the choice i made so thats that.

bulktrans

i guess i am trying to be cautious - after reading all the converation on this thread - govt, inflation etc etc i would go for a fixed rate as it will give me a peace of mind... but not sure what initial duration i should select (2, 5 or more) .. may be an IFA will be able to help...

puddy

well interest rates cant go any lower can they, so they are going to go up at some point, how much and when is what we dont know.

if you took 2 years at something like 5%, would you be confident that when it ends you can either get another one you can afford, or you can afford the SVR?

if you take 5 years, are you ok with the fact that you might be paying 'over the odds' for that time if rates dont rise that much?

i suppose you also have to think about what sort of job you do, are you likely to have a lot of pay rises in the next few years, or are you at the top of your increment at the moment and unlikely to move any higher? if you anticipate that you might be earning a lot more in years to come, then paying a bit more at the end of a short fixed rate, might not bother you much??

Pete111

MiserlyMartin wrote: »

But then house prices were only about £50,000 for an average house. 9% interest rates on that amount borrowed wasn't too much. Plus you had MIRAS which was tax relief on your mortgage interest payments, which helped everyone pay the mortgage, not just the greedy who overstretched. But that was abolished by Labour in 2000.

Totally forgot about that - makes you wonder how high house prices would have gone if it was still in place!!!!

I would have saved a bundle by now... ah well.

bulktrans

well i am not in the top brass and still have a big way to go to reach that level .. pay rises etc is not that much .. i guess 2 or 3 yrs deal would be okay for my circumstances and that way depending upon the interest rates etc you could either get a re-mortgage or pay the SVR.. i think i might get a deal in the region of 6% as i have a 15% deposit..

princeofpounds

This is a massive, massive topic which could be talked about over thousands of words, but the bottom line is that no-one knows what will happen. If we could see the economic future that well, we could all become very rich.

Interest rates are historically-speaking incredibly low. They are likely to go higher at some point, but that could be as soon as next summer or ten years away if we repeat the Japanese experience.

Mortgages are ultimately based on the yield curve - this is the expectations of future interest rates on the debt capital markets. The cost of a fixed-rate mortgage for 25 years will be roughly equivalent to what the market thinks it would cost to take out a variable mortgage over the same period. Unless you are Mervyn King it's probable that you don't actually have a better insight than the thousands of market players into the future path of interest rates.

You can make a speculative decision if you like, but in reality it is probably better to operate from a margin-of-safety perspective than a speculative one. If you go for fixed, you know what you will have to pay at least. If you go for variable, then you should at least look back in time and see if you would be able to service the mortgage if rates returned to 'normal' at the very least.

I wouldn't worry too much about 'missing' low interest rates by the way if it's going to take such a short time to build up your deposit. If interest rates go up, people can afford much smaller mortgages and house prices will plummet again. The only reason they have crashed as little as they have is that rates are so low.