Interest Rate Rises - Predictions....??

nickpe

Good Afternoon All, hope everyone is enjoying the bank holiday break.

Im still quite new to the site but finding the response from members to be excellent and very informative.

Please can i ask members for their views/predictions on interest rate rises (i know we cant predict the future but i just want to try and gain a better understanding of what factors are considering to make interest rates go up).

I would like to know....
1. We all know intrest rates will go up simply because they cant go down much more, but i would like to know from members WHEN do they THINK interest rates will go up and also to what degree???.....does any members think interest rates will go to a very high rate say around 8% ???
2. In the 1980s (before i ever had a property) - i am told interest rates peaked around a very high rate of around 13%......WHY was this????........what factors made interest rates so high???.....and is it possible this could happen again anytime soon?????

I know ive posed a few questions there but im just trying to gain a better understanding of the subject.
Thank You.

Wyndham

Well, I realise this is not a very helpful response - but take one piece of string and try to guess how long it is

Seriously, no one really knows, and anyone who does try to give a date and an amount is talking rubbish. So my particular attempt to talk rubbish would say that rates will probably rise next year, possibly early next year, and I'd be surprised if we ever got much above 5% ever again. But I really, really, really could be wrong.

Scully38

From what's been said so far regarding interest rates, I think they'll remain pretty low for the time being until we get out of this double dip/triple dip/bounce back quadruple dip/ recession. I can't see them going to the level of the 80's for a very long time, but you never know.

*gets out her chrystal ball*

I predict that interest rates will stay low for a further 3 years then steadily rise again.

Running_Horse

I think they'll go up next week, or in ten years, or sometime in between.

Hope that helps.

MacMickster

Most people now predict that interest rates will stay low for some time BUT most people did not predict 3 years ago that interest rates were about to rapidly drop to (and stay at) 0.5%.

What caused interest rates to fall unexpectedly 3 years ago, to rise rapidly in 1988 and 1992 etc?

To quote Harold Macmillan "Events dear boy. Events"

paddyrg

For my money, yes rates will go up. Probably not 15%, but it can't stay where it is either. The Bank of England is just itching to be able to raise rates again, low rates help one set of problems but create others in exchange, that also need addressing.

HAMISH_MCTAVISH

nickpe wrote: »

I know ive posed a few questions there but im just trying to gain a better understanding of the subject..

Most economists believe rates are unlikely to cross 3% in the next 5 years. Some economists believe rates are unlikely to cross 1% in the next 5 years, and I'd be prepared to bet they won't cross 5% in the term of any mortgage taken out today.

The BoE has already admitted the new "neutrality point" for base rates, where a rate above this level destroys demand, and below stimulates demand, is more likely to be in the 3% range moving forwards than in the 6% range it was for the last decade.

As for when they'll start rising, my best estimate would be not before 2013, and even then very slowly and in small increments so as not to derail the recovery.

The fact that you can now get a 3.99% fixed rate mortgage for 10 years shows you exactly where the experts think interest rates are going.... Not very high for a very long time.

Turnbull2000

It's almost certain they won't breach 3% this decade, so expect a one-off upswing in house prices to accommodate lower long-term borrowing costs. For example, using two full-time earners (as is now typical), they could quite easily afford to borrow 200,000 at 3.5% so long as they manage their other outgoings.

I see no reason why house prices won't settle at 6-8x average earnings due to this long-term change - similar to what happened when prices adjusted to around 5.5% rates and double incomes in the noughties.

franklee

The BoE is supposed to keep CPI at 2% +/- 1%. For years they did this more or less, when inflation rose they put up interest rates to bring down inflation. If CPI went above 3% the Governor of the BoE had to write to the chancellor to explain why.

However since the credit crunch this has gone out of the window and CPI as been allowed to rise to 4.5% while interest rates kept artificially low. At some point if inflation keeps going then IMO interest rates will have to rise more so if inflation gets out of control.

For house prices we need to consider wage inflation which is pretty low, 2% ish for the lucky ones IIRC. Usually house prices fall when interest rates rise and vice versa.

People are bad at predicting future rates, most think there will be more of the same and can't envisage much change. However as we've seen before when things change it can happen quite fast. And no I didn't see a 0.5% base rate for years coming either!

You can get historical interest rates from the BoE e.g.
http://www.bankofengland.co.uk/mfsd/iadb/Repo.asp

Running_Horse

See what you did?

You let the nutters out of their asylum.

bris

It's impossible to say but one thing to bear in mind is that people tend to borrow to their max, so if interests rates go up, these people start to struggle. The bursting point is anyones guess, but above 3% and there will be an awful lot of people in serious trouble. Can the banks or Government let repossesions in their thousands happen? I think not so we should see low rates for a long time yet.
But that's my view, i'm not often right.