Interest Rate Dilemma

[ASB]

I think was only at 15% for a few hours on the day we were forced out of the ERM. It followed a spell of the country living beyond its means, a bit like the last few years come to think of it.

If memory serves they never actually made it to 15%. The rate was increased from 10% to 12% with the announcement that a further 3% rise was to be made the following day. However by then we were out of the ERM so I don't think we ever actually got bases rates of 15%.

At the time I had a mortgage of 160k. Ouch.

[rootsnall]

15% was a reaction to propping up the £ and overspill from reigning in the excesses of Lawson’s give-away budgets it would have to be an exceptional set of circumstances to see that again.

I think was only at 15% for a few hours on the day we were forced out of the ERM. It followed a spell of the country living beyond its means, a bit like the last few years come to think of it.

[Troll]

So you reckon if the crash hits then rates would reduce again? No changes of the likes of 15% as seen in the late eighties / early nineties?

15% was a reaction to propping up the £ and overspill from reigning in the excesses of Lawson’s give-away budgets it would have to be an exceptional set of circumstances to see that again.

[DaveB]

Just signed up to 5.14% fixed for 2 years. I'm gambling that by that point rates will have peaked and be on the way back down again.

[meridian]

Interest rates are meant to control future inflation, that is inflation which excludes house prices. It's debatable as to whether or not the MPC have got this right, but it's not house price inflation per se that has caused the interest rate rises - it's consumers drawing the equity from their homes and spending it thus boosting the economy and raising prices which has caused the rise in interest rates (very generally!)

If the crash hits would rates rise or fall? Depends on a large number of factors. One scenario could be: Public sector is after wage increases of 4%+, cost of petrol may be going up again, foods prices are increasing (ironically due to farmers ripping up their food-producing fields to plant biodiesel rape etc). Or perhaps everyone will just tighten their belts, inflation will stabilise, and the interest rates will even out and perhaps start dropping.

Either way I could be wrong.....

[chubba]

The money is on more interest rate rises in the short term, but then falling away pretty sharpish (once we've tripped into recession)

So you reckon if the crash hits then rates would reduce again? No changes of the likes of 15% as seen in the late eighties / early nineties?

[chubba]

Um, no, if we reach a crash then you'll be paying the same rate for the same mortgage but your house will be worth less!!!

Bugger - did not hink of that! But my thinking was that if the crash comes then surely it will be due to / mean a rise in interest rates. Could we be heading back to the days of interests of 7% or higher in the next three years? Yes, it is speculation and that is what I wanted from fellow contractors! I have tried to talk to the good lady about it but her eyes crossed and asked if she would still be able to buy a few new pairs of shoes each year if we moved...

Cheers for the sums, can see that they are all much of a muchness over the two year period but my gamble would be - if interest rate go up over two years to 6.5% for example and do not look like dropping then a fixed 5.79% for another three years would look pretty tasty!

Still, on that size mortgage a percentage point rise in rates equates to about £100 per month and I can pay 10% extra of the mortgage off yearly so would hope to reduce it down over 5 years to a much more pleasant amount.

[Troll]

The money is on more interest rate rises in the short term, but then falling away pretty sharpish (once we've tripped into recession)

[meridian]

All a gamble I know, but what do the panel think?

Borrowing approx £160k on mortgage - a move up so is about 40% of total cost of house.

Simple maths:
4.9% over 2 years + 1.5% fee = total cost of £18080
5.29% over 2 years + £999 fee = £17927
5.49% over 2 years + £599 fee = £18167
5.79% over 2 years = £18528

Whether the base rate goes up or down over the next two to five years is a matter of speculation!

I am really tempted by the no fee 5.79% option as reckon those rates are going to carry on climbing... 5 years is a long time though, but if we reach crash then I could be onto a winner! Of course being a contractor I will have it all paid off in a couple of years so this is only hypothetical

Um, no, if we reach a crash then you'll be paying the same rate for the same mortgage but your house will be worth less!!!

[gingerjedi]

Where's the ‘let it ride’ option? I am of the opinion that over the average 25 year period of a mortgage they must make money out of fixed rates, so over that period if you just stick with a tracker you should be quids in.

Fixed rates are really for people on a tight budget who could not manage any unexpected rise, but you're a contractor so what's the worry?

I must point out that I am not qualified to give financial advice etc etc etc...

[n5gooner]

can you get a capped rate at around 5.79% so if the rates go down then you reap the benifits, but also if they go up, you know the mex. you'll have to pay.

[chubba]

All a gamble I know, but what do the panel think?

Borrowing approx £160k on mortgage - a move up so is about 40% of total cost of house.

I am really tempted by the no fee 5.79% option as reckon those rates are going to carry on climbing... 5 years is a long time though, but if we reach crash then I could be onto a winner! Of course being a contractor I will have it all paid off in a couple of years so this is only hypothetical