Should we be going for a fixed rate mortgage?

quietheart

We've always had variable so far but fancied the stability of Nationwide's 10 year fixed rate, is it a good or bad time to go for a fixed rate?

village_life

aahhh if anyone could give you the definitive answer on this they'd earn a lot of money :-)

my view (recent homebuyer and economics graduate) is as follows.....

firstly the economy is in a delicate balance at the moment - inflationary pressure is increasing in the economy, and the main "tool" to tackle that would be to raise interest rates (thats point 1) the american $ is taking a bit of a pounding at the moment and so the direct impact to the UK of that (amongst lots of others) are that imports are getting cheaper (great) but our exports are getting more expensive which is bad for sections of our economy -so you could argue that the bank of england would be loathe to raise interest rates as that would further push up the value of the pound (relative to the $) and so accentuate the problem

(they'd have to consider where we spend money on imports/exports etc as if we dont do as much trade with america as we do with europe/asia etc this may be negated)

other things to consider are that the housing market is less bullish than of recent times, and i think that is key to the economic prospects at the moment so there is a chance of a rate reduction if anything to re-invigorate the house market in mid-late 2006

perhaps the final thing to say is that consumer debt is massive, yet also as with the above thats really driving high street growth at the moment so raising interest rates there will have a negative effect and may supress the economy, again suggesting that a rate cut may be preferable

however - these are only the issues that flew out of my brain and through my fingers - as you can tell there are masses of factors that combine or contradict to point to either/or

i guess you just have to make your own call on how you see things going, however with base rates at 4.5% ot whatever they are, whatever way you look at it they are fabulously low relative to recent history, so i'd have no qualms about fixing at a rate close to that!

hope this ramble helps a bit

meanmachine_2

The *short* answer is that, no, it isn't a great time to fix - as fixes have been rising in the last 6 months.

But chance of a rate cut in the next 6 months? Less than zero.

However, that doesn't mean fixes won't become cheaper as they're dependent on swap rates.

IRs are, by historical standards, still incredibly low, so view it from that angle.

If I were to mortgage up now, I'd take a five year fix, no longer.

village_life

thats what i did.... a 5 year fix that is!

any longer than that and you risk having a product that has lost context with the environment......

F_T_Buyer

Personally I think Sterling is over valued (not as much as the $), and the reason Sterling is high at the moment is the markets are expecting higher interest rates very soon.

If the BoE/MPC stated rates will not go up, sterling would fall quite rapidly.

As for fixed rates, who knows?? I was talking about fixing rates at the start of this year, but told by many rates will go down so best to wait - obviously those who did not fix is worse off now.

I also think the low interest rates era is over. Inflation is making a comeback. The BoE were wrong to assume commodities were a blip, and so wrong with their inflation forecast. Inflation is a result of the excess liquidity in the system, and is lagging by a few years. Watch this space, watch inflation!

tomstickland

I've just gone for a 2 year fix. I'd consider 5 years as OK. 10 years it a bit too long range IMO.

emilyt

We have recently remorgaged. Our first mortgage was for a 5 year fixed rate that finished in may. We have now got a 10 year fixed rate as we got a better deal this time with the interest rates going down. I like to know what is going out every month and now i won't have to worry about it untill 2016. Hope this helps.

MarkyMarkD

emilyt wrote:

We have now got a 10 year fixed rate as we got a better deal this time with the interest rates going down.

A cheaper fixed rate is NOT necessarily a better deal.

If a few years ago, the "fair" rate for a 2 year fixed rate was 6% and you paid 6.5%, but now the "fair" rate for a 2 year fixed rate is 5% and you paid 6%, the current deal is not a better deal - it's just cheaper.

It's like saying that "I got a better deal buying a Betamax video recorder today for £200, whereas they were £500 when they were introduced".

quietheart

great response so far - cheers! i think i will consider going for 5 years, should've been able to work that out for myself i guess - doh!
thanks again:T

meanmachine_2

F_T_Buyer wrote:

Inflation is making a comeback. The BoE were wrong to assume commodities were a blip, and so wrong with their inflation forecast.

Aside from supply and demand, surely the reason why oil, gold etc are priced so high is because there is too much money sloshing about the system.

That's why these prices have stayed so high. I'm no expert, but that seems blindingly obvious to me.

The only way in which commodities prices will come down is if liquidity is sucked from the system - which means higher IRs *and* a global recession.

Or am I missing something...?

F_T_Buyer

No, you're quite right. I'm sure lots of other factors will be an issue in the short term, and the media will continue to blame them (like Iran).

Ultimately commodities are high because real interest rates are negative, when they go positive I will be selling my gold and buying gilts (at high rates) - this will probably be a couple of years away.