Are the interest rates going to go down in the next couple of years?

ManAtHome

But would anyone take out even a 10 year fix when el Banko has a history of keeping rates artificially low? Personally, I think they're stuffed (that nasty "rest of the world" have been setting more realistic rates, the China, Internet, Cheap Money and "Polish Builder" effects are starting to unwind, and now they're playing catch-up), but we are due a general election in the next couple of years...

UK007BullDog

Save4ArainyDay wrote: »

I heard last week that someone is offering a 25 year fixed mortgage - which you can get out of without penalties after 10 years - I was driving at the time and don't remember which bank/building society it was but it was a big name, if I was starting out now in the property ladder this would be attractive to me.

Its Nationwide. Its only suitable for those who are happy with "just" overpaying £500 max per month. If someone wants to overpay more due to more income you are tied in big time until the 10 years are over. Have you seen the early repayment charges? Who knows what one will do in the next 10 years let alone in the next 25 years.

Also to compare it to the financial happenings on the continent and how mortgages are handled there is somewhat of a folly as "Europeans" are not as flexible with their moving about once they bought a property like the UK folks are.

orinoco

noody123 wrote: »

Hi all, not sure about you but i have achoice of a 10 year fixed rate at 6.15% or a standard rate at 7.38%
Unfortunatly i don't have the money to buy into a 5 year at 6.64%
If its going to be like the last time the interest rates dropped it took 3 odd years if memory serves me right.
If on the other hand it is going to be a year it may be worth holding out for a better fixed rate deal.

Hi, I am in a similar position so youe may be receiving similar advice to us I guess. Our 2 year 4.29% runs out on 30th September.
Our mortgage advisor is recommending Coventry Building Society's 10 year 6.09% fixed rate as there is no tie in beyond 5 years. So essentially we can keep the fixed rate if interest rates are still up or buy out for a better rate in 5 years time with no early repayment charges. As we are looking to do some home improvements it is also allowing us to offset £20,000 to use when we need it. We are basically going to need about £20000 over the next two years a bit at a time. Coventry are also doing a 3 year fixed rate at 6.09%. All of these products cost about £1000 in fees, is that about right?
Our mortgage is £116000 on a £240000 house but we will need a 25 year deal again to afford payments at the moment. Hope this gives you something else to consider. Anybody else got any better ideas?

On a separate issue that someone brought up earlier, does raising interest rates to cut high street spending work when so many people don't care and just bung it on a credit card nowadays? I realise that it would work in the old days (pre everyone having credit and debit cards for even small transactions) when you had to have the money in your pocket to spend it. It seems to me that if anything there will now be a longer lag period before spending is cut as it will take a while for the credit card debts to have an impact (if you see what I mean!!!)

dwsjarcmcd

Long term mortgages (5 years and more) are less about the pure rate and more about knowing you have bought it, you can afford it for the period you choose.
As has been said, know one really knows whats going to happen but currently they are good value, especially against 2 year rates and when you consider all the fees you would need to payover the period, together with absolutely no 'guarentee' that the rate is going to be cheaper after 2 years.
To one other comment, I know there are many people who can afford 'more' than £500 month overpayments' but they will be the (tiny) minority!

HelpWhereIcan

The answer you get will depend on who you ask and which 'expert'/pundit they have been listening to.

As far as I can gather, the general consensus (as demonstrated above) is that there is at least one more rise to come (probably sept/oct). What happens after that is in dispute to an extent.

There are as many votes (amongst pundits) for stabilisation as there are for further increases, but I think most fear further rises will be inevitable

http://www.ft.com/cms/s/b09c28e2-3440-11dc-8c78-0000779fd2ac,_i_rssPage=d99f2a62-30cf-11da-ac1b-00000e2511c8.html

There are even those (but not a huge amount) who predict short term (1-2 years) falls, such as the Bristol & West economists:

http://www.bristolandwest4brokers.co.uk/brokersupport-experti.aspx (under Bristol & West Predictions)

Swap rates would appear to contradict both and seem to predict a more long term reduction.

http://www.swap-rates.com/UKSwap.html

The thing they both have in common is that their predictions have been increasing e.g. Bristol & West predicted year end 2007 at 5.50% and year end 2008 @ 4.75% about 6 months ago.

IMHO, this means that you choose the deal for you based on whether you need security or not (Fixed or Capped) and how long you need it for

Need 5 years of security? go for a 5 year fixed deal.

Need to have some security but prepared to take some risk in the hope of benefitting from any drops you are expecting? look at a capped rate for 3-5 years or something like Woolwich's 1 year fixed followed by 2 year tracker with 'drop lock' option.

Think a drop in rates is a dead cert and/or have a mortgage you could easily afford if rates continue to rise? Look at a 'low' tracker deal (possibly one with no early repayment charges, just in case ).

No one knows the answer for sure. No one deal is the best for everyone.

What I have noticed is that Capped rates are more appealing these days as they provide some protection from increasing rates, but allow you to benefit from any drops.

HelpWhereIcan

orinoco wrote: »

On a separate issue that someone brought up earlier, does raising interest rates to cut high street spending work when so many people don't care and just bung it on a credit card nowadays? I realise that it would work in the old days (pre everyone having credit and debit cards for even small transactions) when you had to have the money in your pocket to spend it. It seems to me that if anything there will now be a longer lag period before spending is cut as it will take a while for the credit card debts to have an impact (if you see what I mean!!!)

There is an argument that says you are correct and the mentality of the Brit of today is very short term and paying for everything on the 'never never'.

There is also an increase in expectation amongst the population of being able to enter bankruptcy/an IVA if things get too tough.

There is less real fear about the effect of being unable to meet your commitments. The stigma of bad debt is disappearing and there is an argument that some people are a little fatalist about taking an extra debt on.

I agree that there will be a lag before we see the real effect of Credit card debt etc on spending and we are already starting to see drops in spending and mortgage approvals.

Do not forget that all the people (like you) coming off 2 year deals now will also be sepnding less as the effect in rate rises to date hits their pockets as they have to take on new, more expensive deals as the year ends.

This could mean that the effect the BoE have been seeking is starting to appear and is the argument for the BoE making their decision re further rises later in the year rather than August. If the effect on spending is what they want, that rise may not materialise and stabilisation or reductions may occur in 2008.

The downside is that they HAVE to control spending and will do so at (almost) any cost.

I don't think they fear a housing market crash - neither the prospect nor the reality (let's not start that argument though) - and will look to push rates by as much as it takes to get us back on track to meet inflationary targets etc.

Just some (possibly random and probably wrong) thoughts

Woby_Tide

HelpWhereIcan wrote: »

Swap rates would appear to contradict both and seem to predict a more long term reduction.

http://www.swap-rates.com/UKSwap.html

Whats more interesting with swap rates though is that on the extended rates, a year ago they were predicting rates of just over 5% for now, the money makers aren't always right

ManAtHome

HelpWhereIcan wrote: »

The downside is that they HAVE to control spending and will do so at (almost) any cost.

I don't think they fear a housing market crash - neither the prospect nor the reality (let's not start that argument though) - and will look to push rates by as much as it takes to get us back on track to meet inflationary targets etc.

Agree with most of your post, but the quoted bit above is sensible economics (which I also agree with, but I suspect that's where BoE/guvt and I part company).

They've lost the plot on their only target - to keep "inflation" at 2% (no, I don't think it reflects "man in the street/clapham omnibus/at home either). Over target well over a year now, and counting... Whatever their supposed timeline is, they obviously got 2006/7 forecasts a good 35% out.

A housing crash before the next election might cause problems with the nice little MPC earner (as Gordy appoints most of them). I think they may either settle for hitting 2% one month in 20, or a "relaxation of targets due to global economic conditions".

Either way, 3-5 year fixes on savings and/or Euro accounts are looking more attractive by the week.

ManAtHome

Woby_Tide wrote: »

Whats more interesting with swap rates though is that on the extended rates, a year ago they were predicting rates of just over 5% for now, the money makers aren't always right

Too right, we've "hit the peak now" every 1/4 percent since last August - bound to be right eventually I suppose.

noody123

Hi all, I am not a money expert but i figured if i could find out what happened with the mortgae rates over the last 20 years this may help in what to do. After a friend helped i found a link that clearly shows the interest rates from 1989 to this year. For me it confirmed i am going for the 10 year fixed rate.
Take a look its interesting to see how long we where on the higher rates and how short a time we have been on the lower rate!:j
http://www.moneyextra.com/dictionary/Interest-rate-history-003455.html