Mortgages - What's going to happen?

northernbutters

Hi All,
My wife and I have had an offer accepted on a property, which based on the current rate we've got for our mortgage isn't going to stretch us too far. I'm keen however, to try to guage what people think is going to happen with our economy, the bank of england base rate, and therefore mortgages. My main concern is that we make an educated guess at what's going to happen to banks of england base rates, and therefore whether my 2 year base rate trackers is likely to go up.

I understand that I'm asking the million dollar question. But I'd like some informed opinions as I've seen a variety of views on this, some of which I think could be innacurate scare mongering.

My understanding is as follows: Please give me your view on things!

• Unemployment is high, but not as high as expected.
• Mortgage applications are very low, have been fluctuating slightly with more products on the market, there have been some minor increases in number of applications and appovals on this time last year. And rates are expected to improve in the coming 18 months as LTV rates become more reasonable.
• National Debt is astronomic and therefore there could well be increases in taxation, and reduction in public spending.
• Personal debt is high after many years of free credit.
• Liquidity in many markets including the mortgage market is a problem.
• Mortgage companies are maintaining high rates in comparison to the bank of England base rate in order to balance the books.
• GDP is down.
• Inflation is up on september but is still uncertain. Some analysts think that despite a peak in Jan 2010, the downward trend will continue.

I may/may not have got some of the above wrong. But my interpretation of things is that with debt, national and personal being high, low liquidity, GDP being down, inflation not expected to go through the roof in the next 12 months, and unemployment being reasonably high, the bank of England base rate won't move to far, too fast.
As I say my main concern is that some people are suggesting bank of england base rates could rocket to various highs like previous recessions. I personally can't see that happening unless inflation goes through the roof.

What's anyone elses opinion on this?

Thanks in advance for your input.

NorthernButters

kinglewis

I certainly think that we are all in for a bit of a shock when the rates do go up.. which I believe will happen in the 3rd quarter of 2010.

This country has experienced numerous recessions before but not within any of our lifetimes have we seen such a lack of liquidity in the financial markets. Banks nearly going bust?? Who could have guessed that 5 years ago?!

Previous recessions have always brought high inflation, high interest rates, high unemployment. We have seen the high unemployment.... what do we think is coming next?? (as the pound continues to weaken and taxes rise)

I just can't see how the QE will get this country out of this mess... just seems a little too simple to solve such a huge problem imo. Fantastic if it does tho!! But I don't think life works like that. We have had (as a country) 10-15 great years... spent too much.. now its payback time.

Large changes will come about after the election next year... and as Cameron said "There are tough times ahead".

I think he's right.

Sorry if this appears negative... but let's be realistic. This recession has been far too easy for us to be out of the woods yet.

rsykes2000

One thing I heard on the radio last night (Radio 5Live Drive programme) was that 2-year fix rates have been coming down slightly. I took this to mean that the banks do not see interest rates going up much in the next couple of years (but there were no specific examples reported, possibly due to BBC advertising regulations ?). However, 3 / 5 year fixes are apparently pretty stable if not creeping up a little.

princeofpounds

Here is the BoE's yield curve data. The yield curve is basically the market's best guess of interest rates into the future.

You will not be able to guess better than the market. Neither will any other armchair pundits on this forum. The market will probably guess wrong to some degree, potentially very significantly.

Note that this curve is based on LIBOR - your mortgage (or the SVR you will go on to) will be at a given margin to LIBOR and so you must apply this to work out what rate you are expected to get.



http://www.bankofengland.co.uk/statistics/yieldcurve/index.htm

princeofpounds

the bank of England base rate won't move to far, too fast.

Now, for what my personal opinion is worth I agree with you that the risk is to lower for longer interest rates.

However, be very careful. Most mortgages are not priced off the BoE rate at all, but the LIBOR rate.

If BoE rates are kept artificially low for too long and inflation skyrockets, don't believe for a moment that banks won't look to increase margins on their SVRs and track anything funny that LIBOR does.

LydiaJ

You might want to try posting this on the debate house prices and economy forum - you'll find plenty of people on there who'll be happy to explain what they think will happen, and why, and what you should do about it. They won't all give the same answers, though.

bmunky7

kinglewis wrote: »

Sorry if this appears negative... but let's be realistic. This recession has been far too easy for us to be out of the woods yet.

I agree with the thrust of your arguments but don't mention how easy the recession has been to all those who have had their house reposessed or lost their jobs!

theartfullodger

Last time the Cons got in interest rates quickly went to about 17% (s-e-v-e-n-t-e-e-n) and were above 10% for some years....

Cheers!

Lodger

princeofpounds

Last time the Cons got in interest rates quickly went to about 17% (s-e-v-e-n-t-e-e-n) and were above 10% for some years....

I hope this is just a history lesson of what interest rates can do rather than political mudslinging! It's a lot more complicated than anything to do with a single political party.

kinglewis

I agree with the thrust of your arguments but don't mention how easy the recession has been to all those who have had their house reposessed or lost their jobs!

Fair comment

brit1234

Inflation is going up, that can't be helped. Oil is rising and that put all things up as goods use it to be made and transported. Hence the BOE main remit is inflation and so rates will be going up, best to fix 5 or 10 years