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When do you think interest rates will go up and by how much?(57 Posts)
I ask this because we are thinking of buying our first house, as we have to leave where we are renting currently as the landlord is moving back in. Our rent has been very cheap for the area and we realise we've been lucky with it. However, other rents for the area are really extortionate and would be about the same as a mortgage for us now. However, we've been given a mortgage in principle, but there is quite a difference in cost between fixing for 2 and 5 years. I'd like the piece of mind of fixing for 5, but dh thinks we should fix for 2 as he doesn't think rates will go up massively in the next 2 years. I am worried about this. Just wondered what others would do in this situation.
Bank of England has said the 0.5% rate will remain in place for 2014. I expect it to start going up in 2015 but by very small increments. Maybe 0.5-1% in the first year, maybe a bit more....
Inflation is falling and the housing market is spiralling out of control so I expect the gov to start taking steps to bring it back into some sort of order by making it more expensive to borrow money.
I work in the financial sector but I'm in no way an expert. It's always going to be a gamble one way or another. Anything could happen!!
Thanks for your reply. That's what I think too Daughter. We are in between a rock and a hard place really, as I was happy renting for the time being. I know house prices are crazy and we have been saving like mad for years for a 10% deposit. We now have to move, our hands have been forced so to speak. We could rent again, but rentals are way too expensive here. However, I feel that buying when interest rates are at their lowest for 300 years and house prices at an all time high is crazy too. We don't know what to do TBH.
We have just had our mortgage in principle certificate and await a three hour appointment at our building society next week about the actual affordability. Your lender will have some input though in the past they just said show us your wage slips and that was it.
Really it's a bit of how long is a piece of string but info from Bank of England is in this article.
I had a mortgage when interest rates were really high my own mortgage was 13%. For that reason I am cautious.
DH predicts that by 2020 they will be about 5.5%. He is purely an amateur economist but does it for fun and plays with small investments.
Basic supply and demand, there is not enough housing and a lot of demand for housing, lots of single people, divorced people, elderly not living with extended family as they once did, people living longer, lots of buy to let, let to buy investors, people from abroad view London housing as a good investment, lots of migration into the country we don't have enough housing.
Not having enough supply means prices will continue to go up.
As has been said previously the best way to curb house prices is to increase interest rates.
I would pay as much off as you can when the rates are low and make sure you don't borrow more than is comfortable to repay at a 7% interest rate in the future .
Thanks Precious, It is so difficult to know isn't it. We held of buying this last 5 years as we thought house prices were too high and rates would rise. However, it hasn't happened and we could have paid down 5 years of a mortgage by now. I know they won't go any lower, but I also think that with the government offering this help to buy, will rates really go up massively as that would cause all of the first time buyers who have taken out these schemes a lot of problems. I just don't know. I oscillate from one extreme to the other. Good luck with your mortgage BTW
It's difficult though toothpaste, as we would be buying in a few months, probably the worst time to buy a house ever for a first time buyer with a small deposit in an expensive area with a young family.
Pondering the same thing - our current 3 year fixed deal comes to an end in May. Dh is annoyed that the standard variable rate has been less than we fixed at & is reluctant to fix...
The stuff I've looked at predicts rises in 2016 so suggests a two year fixed will end just as rates are increasing.
Apparently the financial markets are guessing at interest rates being 3% in 5 years time. They are frequently wrong, but I think it indicates that rates are unlikely to rise very fast.
The other thing to bear in mind is what sort of rate you're likely to be able to get in 2 years' time - I doubt you will be able to get anything as cheap as you can now. Personally I think if you're going to fix you may as well do it for as long as possible. You also save having to pay mortgage fees again in two years' time.
Once those with large savings who invested in buy to let, can get good rates in the banks again that pay a better yield than rent, houses will be sold and it will free up a lot of property again.
At the risk of being flamed - soon I hope!
When I had a mortgage, they were sky-high. Now that I don't, I get bugger all in interest
Personally, I think rates will rise shortly after the general election, so yes I agree member, late 2015 early 2016. As you say, that would really bugger up a 2 year fix. Dh thinks we should fix for 2 years now and lock in some equity, then fix for 5. I just wonder whether we'd be cutting it fine though in terms of missing the boat.
I think you're right charlady, 5 years is a long time and anything can happen. Hadn't thought of that Toothpaste. It makes me wonder if we should carry on renting then. We are not getting any younger though. Mummy, I have been dying for rates to rise for years as I hoped it might bring house prices down to a sensible level but the powers that be have not allowed it. Now I need to buy a house, I'm terrified that they will. For what it's worth, I would rather pay less for a house on a higher interest rate than extortionate sums for one on a lower interest rate. Rates aren't even that low if you only have a 10% deposit, well not compared with bank rate anyway.
If you find somebody who can tell you where interest rates will be over the next few years, be sure to tell her to enlighten Mark Carney, the MPC and investment banks worldwide.
I know nobody can predict that Finance and really I'm just trying to get other peoples take on it. I'm sure they will rise soonish, however, why would the government be going on an all out mission to hike house prices even further. Surely they must know that the carnage that will ensue when Mr Carney does raise rates will cause another financial melt down and the banks will want bailing out again and we'll end up in another period of austerity again (not that we left the last one), people will lose their jobs again and more cuts will ensue. I just can't see the logic in them keeping prices so high if they plan to raise rates any time soon. I just want to raise my family in a secure home and know that I won't get asked to leave again and that the children can stay at their school, yet it feels like a life and death decision without sounding too melodramatic.
budget for 7% and you should be fine...how old are you?...every year you wait is another year taken off the time you can get a mortgage for.
We're nearly 42 pitch, so not getting any younger I know. Dh has a good job and has been with his employer for over 10 years so pretty stable. He is going for a promotion too. I'm a SAHM at the moment but youngest starts school in 2015 so I can bring in a wage. We would be buying on 4 X his salary with a 10% deposit. A scary amount in my mind but renting is the same round here. We have been lucky with lowish rent which has enables us to save the deposit. Wish it could be 20% but it isn't. We have saved stamp duty too and solicitors costs, so it all adds up. I feel that if we don't go for this we might regret it later as the house is a good price for the area (I think). Our landlord has offered to sell us his house that he currently lives in and has knocked 10% of the valuation for a private sale.
Too tired to think now, will be back tomorrow!
We've owned a house for 14 years next month and had fixed for nearly all of that time. The only time we were on variable was when we were planning to move and didn't want to be restricted in any way. Imo you do not fix to save yourself money. The way things have gone variable would probably have been cheaper for us after the first few years when the fixed rate did save us money. The point was we have always had security about what we're paying. Never watched the news anxiously - and never worried about what my parents faced in the past with interest rates of 12% or so. If you want that security then fix and don't worry about what rates are doing. You take yourself out of that gamble. It depends what you want to do - save money or buy yourself some security and peace of mind. You can't really do both.
Thanks northern. I think we should fix for 5 years. Dh thinks we should fix for 2. That said, we've only got the mortgage in principle so when they look more closely at us and scrutinize our finances, they might not lend to us anyway, especially since we have 3dc and I'm a SAHM for now. Although they knew that when they gave us the MIP. Oh I wish I had a crystal ball!
Same here Northern, we bought 12 yeas ago fortunately just before prices really rocketed. We have been fixed for the past 5years ( runs out in July) and have been paying more than if we had been on SVR, but I have to keep reminding myself that we wanted the security of knowing exactly what we were paying each month. Hoping to fix again in July for another 5 years before the rates rise significantly.
So what is the house your renting like? Are you tempted?
Have you studied the local market where you are? I am in the southern bit of the North and house prices are really okayish here. So we are very lucky, originally from SE and I gasp at the prices there now.
DH is 45 so they have offered up to 20 years.
I agree that you should work on the basis of what would be affordable if the rates were 6-7 percent. This is a far more realistic average rate. I think rates will start to rise fairly soon (within the next 18 months or so). Talk today about raising NMW above inflation because businesses are recovering
House prices are not going to come down dramatically by design. That doesn't happen because the powers that be would lose thousands of voters who would then be stuck in negative equity and would directly blame the government. House prices may fall through reasons which are out of the control of the government but don't plan your housing future on the basis that someone might intervene to bring house prices down. Its just not realistic.
Fixing is only worthwhile if you need the security of always being able to pay the mortgage since you will pay a much higher rate. If you need that stability you need to try to asses for how long you need that stability and fix for that long.
Also bear in mind that if you're nearly 42 you might be looking at a shorter term on your mortgage. 20 years for example rather than 25 and this will affect the level of your payments if you are going for a repayment mortgage.
Have a look at fixed rate bonds ...will give you some idea what the banks think will happen to interest rates...1 yr - 2%, 2 yr -2.5%, 3yr- 2.6% - then 5 yr is 3.25% and 7yr 3.5%
Last time I looked ( a couple of years ago) there was no real difference between 1 yr, 2 yr and 3 yr - even 5yr fixed bonds - meaning the banks were pretty sure they weren't going anywhere ...
(although investment rates not helped by the banks not needing our money at the moment)
And then again I was the person who didn't fix at 6.5% thinking they were going higher ...just before the crash ...
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