Do you think interest rates are going to fall significantly (<2%) over the next 5 years?

Gaberdeen

Gaberdeen

As the title suggests, myself and OH are due to remortgage our property and would like to solicit some opinions on how long a deal we should go for.

At the moment, our current mortgage is £201,800 and we're on a 2 year fix at 3.62% - the anticipated renewal figure is estimated to be around £198,500.

In January, I will be able to put £100,000 against the mortgage reducing the estimated renewal figure to around £98,500.

MSE's best deal at the moment for us is:

3.69% initial rate, £724 monthly payment, set-up fees of £999 - fixed for 5 years
3.89% initial rate, £734 monthly payment, set-up fees of £999 - fixed for 2 years

I should note regardless of what term we agree on, we intend on offsetting the mortgage with a joint account and have the means to overpay every month;

Offset starting balance of £6,000 - monthly over-payment of £1,022.
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So the burning question is, do we think that interest rates are going to be significantly lower in 2 years time to justify taking a shorter-term mortgage - or are rates likely to remain where they are for the foreseeable future?

Any insight and rationale as to your views either way are most welcome.

badmemory

As the bank of england appear to be determined to mess things up for us I really wouldn't like to hazard a guess.

born_again

I guess it all depends on just what happens in the budget & how inflation go's after that. 

ACG

The options are below 2% and above 3%... what about everything in between? 
And are we talking base rates or mortgage rates? 

I am doing a mortgage for a customer on monday, 2.89%... But it comes with a fee that makes the mortgage the same as over 4%. 

El_Torro

born_again said:

I guess it all depends on just what happens in the budget & how inflation go's after that. 

While the UK government (regardless of which party is in power) has an influence I would be more concerned about global factors affecting inflation than an annual Budget. The next Covid, or Ukraine, or unrest in the Middle East, will have a much bigger impact.

If I were to hazard a guess (and it really is just a guess) I would say that it will be a long time before we see interest rates below 2% again, more than 5 years from now.

I'm going to be remortgaging myself in early 2025. While I'll compare 2 year rates and 5 year rates my feeling is that I'll probably go with a 5 year fixed rate.

Hoenir

No, I think interest rates will remain above 3% for the next 5 years

Mortgage interest rates already lie beneath BOE base rate. Part of the normalisation process , taking us back to the pre GFC era in 2007, will see mortgage rates eventually rise above BOE base. I doubt that there's going to be the significant change you are expecting as time passes. 

Gentoo365

I would not want to make any plans where I rely on them going down, or rely on them not going up.

Gaberdeen

El_Torro said:

born_again said:

I guess it all depends on just what happens in the budget & how inflation go's after that. 

While the UK government (regardless of which party is in power) has an influence I would be more concerned about global factors affecting inflation than an annual Budget. The next Covid, or Ukraine, or unrest in the Middle East, will have a much bigger impact.

If I were to hazard a guess (and it really is just a guess) I would say that it will be a long time before we see interest rates below 2% again, more than 5 years from now.

I'm going to be remortgaging myself in early 2025. While I'll compare 2 year rates and 5 year rates my feeling is that I'll probably go with a 5 year fixed rate.

Thank you for the considered reply - much appreciated

kingstreet

Are you talking about base rate below 2%, or mortgage rates below 2%? I'd say the latter is highly unlikely.

ReadySteadyPop

badmemory said:

As the bank of england appear to be determined to mess things up for us I really wouldn't like to hazard a guess.

They have to follow the FED and Bond markets (as the Truss Team found out) I think global conditions would make rate rises more likely than cuts in the future.