Are Interest Rates going to increase?

AndyH1976

Im in the process of re-mortgaging to an Offset deal with IF 1.69% Above base). It is a tracker so with all this talk of rates going up Im a little worried that it might not be a good idea.

What do people think, will there be just one increase or a number?

My other alternative is a safer route with my current lender of 5.95% for a 2yr fix but its not an offset mortgage.

I really cant decide what to do for the best

homer_j_3

What savings do you have to offset? Have you calculated at what point the interest rate would become unaffordable?

ThomasJames_2

I would say fixed rates will increase given how much they are costing lenders, see below.

Also given inflation of 3% and rising, I cannot see many more base rate cuts, some think the next move there could be up.

TheGreatBear

I would definitely be leaning towards the fixed rates at the moment. Some pretty depressing news is circulating around the city at the moment and it looks like interest rates will increase as soon as next month. So even though the offset looks good at the moment it may look awful in 2 years time!!

dont want to be a scare mongerer but just think carefully before comitting to either deal

As i dont know your personal circumstances, this is purely my opinion.

Regards

AndyH1976

homer_j wrote: »

What savings do you have to offset? Have you calculated at what point the interest rate would become unaffordable?

Its tax money because Im self employed but its roughly £25K at the moment and will increase until I pay my tax bill in Jan. After that savings will build up again.

Using the IF calculator the effective rate during the 5yrs will be 4.9% and rate for the term of the mortgage is 2.8%. Overall cost = 7.8%

*MF*

Just my 2p ...

The so called "credit crunch" occurred because of a disconnect between the day to day world most of us live in, and the financial markets, that disconnect remains imo, and can be seen in the fact that moves by the BofE do not correlate with the financial markets - so it is not easy to relate the factors that we would normally think have to be taken into account - inflationary pressures being the most obvious candidate - and what may happen in "the other world" of bank lending.

Bernanke is reported as saying the US may have avoided the worst - that is at one level - but on the streets unemployment is rising (it is here too), consumers are cutting back, and their confidence is badly shaken - same as here.

Long winded way of saying I personally don't have a clue what will happen next - except we are in the tunnel, and the light is still off.

lisyloo

Have you considered the First Direct offset mortgages?
Looks pretty good to me right now.

AndyH1976

I did ring them a few weeks back and they were only offering new deals to current customers, might have changed now but I havent got time to start fresh with a new lender.

Just waiting for the underwriters at Abbey to give the go ahead on the 5.95% fixed deal. Thanks for the help.

ixwood

From Moneyweek:-

"Fear of inflation is permeating the markets
Producer price inflation (PPI) exploded in May. The Office for National Statistics reported that factory gate inflation hit an annual rate of 8.9%, the highest since records began 22 years ago. Manufacturers’ raw material costs are up a record 27.9%. (For more, see: UK inflation just keeps getting worse).

Markets, already jumpy amid soaring oil and aggressive noises on rate hikes from the European Central Bank, “embarked on a massive sell-off of UK government bonds”, reports Edmund Conway in The Telegraph this morning.

In fact, the two-year swap rate (a key measure in determining mortgage costs) jumped from 6% to 6.3%. The move suggests that traders are now pricing in a British base rate of 5.75% by the end of the year. It was the biggest such move since Black Wednesday in 1992.

What does it all mean? It means that the rise in borrowing costs is no longer just about fear of bank solvency, where lenders were reluctant to lend to each other because they thought they might not get paid back.

There is now a genuine fear of inflation permeating the markets. Lenders are demanding a higher return on their money, not because they are afraid they won’t get paid back, but because they are concerned that inflation will destroy their returns. That’s bad news for anything that pays a fixed income, like bonds. "

Jim_Cross

Moved to its own thread...