Interest rates up to 5.75 per cent

[layman]

I think there will be another one after this, perhaps more. The days of low interest rates are over for now. Good for savers though.

But if prices come down that's good, no?

Good question twig...and I will probably be cr*p at explaining it, but probably best explained as the rate that the city(i.e. bank traders) think interest rates will get to.

In the wholesale market (i.e the city) you can take out a contract that will allow you to borrow x poounds at a nominal rate of interest in 2 years (this is known as the forward rate). The fact that the rate is now 6.3% for 2009 means that the city thinks the rate is going to 6.3% by then.

Please can I leave the room now....my brain is starting to hurt?

1. forward rates do not equal expected future rates

2. you can't refinance yourself if you are on a fixed deal - it would cost you a fortune in penalties to repay the fixed - 15% of the mortgage amount in one of the offers I got.

3. I am an offset girl myself. Gives you the most flexibility and you do not have to switch around every two years.

I was doing the numbers on the fixed vs tracker vs offset and any benefit that you get from the lower rates on fixed and tracker is wiped out when you remortgage in two years in repayment fees, new survey/valuation, new mortgage arrangement fee. It is a complete con.

not if you get a mortgage with no fees attached .. which is what I did 3 months when I fixed at 5.5 for 2 years and I hope to do again in 2 years time

oh and thanks hecciesmum .. I thought it might be money markets but wasn't sure .. still its all a gamble isn't it (as the trader said to the barrow-boy)

Ummm, sorry but Foward rates generally do equal future expected rates (although there is a small risk premium included in pricing)....Not saying that they necessarily are where ACTUAL rates end up, but they do indicate the expected future path of rates by the market.

Take your point though about a penalty to come out of a fixed deal to remortgage at a lower rate. However, the point is still that the MPC IS almost certainly going to raise rates again in November after the inflation report is published, by another 0.25%, with another 0.25% rise possible in February..

The ones with no fees tend to charge higher rates

Plus you still have to pay for your old mortgage to be discharged

And for a survey

Banks are businesses - they need to make money

Cheshire BS do a ten year fixed rate at 5.69% and a 25 year fixed rate at 5.99%.

nope justaphase not if you shop around

ok I paid £80 to discharge old mortgage and can see that being £200 in the future

but no surveys, legal, arrangement fees to get the fixed rate I'm on .. they are around you just have to look

I'm looking around for a new fixed rate, mine ran out in March but everywhere I look the fees outweigh the saving and there always seems to be a early redemption fee.

Why is this so hard?!? or probably a more accurate question is why am I so dumb?!?

I'm glad I didn't stretch myself too much when I bought my house but it's always a worry, that I might be in trouble in a couple of years time.

It takes quite a long time for the effect of interest rates to come through into the economy. It is interesting because I think that the reason interest rates have been raised to curb consumer borrowing - the rate of debt at this country is in is unsustainable.

It does motivate me to scrabble around for 5k to pay off my loan next year though

Yeah - they normally say that it take 18months Noodle before the full impact of a rate cut or rate hike has fully fed into the economy. Hence the reason why there's often an over or undershoot on rates...i.e. the bank of england keeps on raising rates to kill off inflation and the growth in consumer credit but doesn't actually know for another year and a half whether it went one raise too far......5.75% might be enough in reality, but because they can't see the effect yet and the inflation figures keep coming in strong, they raise to 6%, then 6.25%. Then we get GDP growth falling off a cliff and they end up having to cut in 2 years time again....

It's a tough one to call, even for city economists

what is the rate Twiglet (if you don't mind saying) and when did you take it out?

The problem with 10 and 25 year fixes is that you will be kicking yourself when the rates start falling. They have been generally below 6% (and as low as 3.5%) in the last 10 years.

Of course it gives you stability and security.

It is the two-year fixes/low cost trackers that I hate.

Hecciemum - I think this is all very interesting becaue whilst I can see the interest rates need to increase to curb consumer spending on the high street there is also the effect on housing - I think in about 12 months the housing market will cool off at the lower end - I think we will see alot of amateur buy-to-let LL getting out - esp 1/2 bedroom flats etc. This will be a good thing opening up housing to first time buyers.

Noodle - i suspect you are right, but more concerning to my mind is that there are approx 1.5 million households who will see their fixed rate deals which were struck at 4.25% back in August 05, expire this autumn. They are going to see their interest rate bills 25-30% up on what they are today, and some will be forced sellers because they just won't be able to finance it anymore. That is ALOT of property potentially. One of the large investment banks has written a very interesting piece on this recently. Default levels are still at very low levels v's history too....a rise would not be a massive surprise.

I'm afraid to say that I think the whole thing could collapse like a pack of cards. Ireland is already seeing dramatic declines in property prices because the ECB has been raising rates, and property is more expensive now in real terms than at any time since 1948.....we need to see 30% off the market to restore affordability. All that we have seen in the last 10 - 15 yearsis a massive transfer of wealth from the young tp the old who are withdrawing their equity while we borrow more and more....

I'll get off my soap box now......

Well, the higher the rate goes, the more it affects business and investment.

Who's to say?

We have some debts, about £2000, and we rent, so I don't really pay attention to interest rates.

Guess if you borrowed over or near your limit on a home it could be dicey.

It's only good for savers if the banks pass on the rise, which I wouldn't hold my breath for.

The nice thing about being poor is that stuff like that rarely has any real effect on you.

I think the number is up for property I have been buying and selling for 10 yrs and have just sold up to rent because all the signs are pointing to a downturn.The forward rates are indicative of what is to come The head of the bank of e has already warned that interest rates are set to reflect the WHOLE economy and not just to timker with property figures.For the first time ever all agents i know in Brighton have said they can see the end which is good for people who just can't afford a home.Lots of people leapt on the low fixed mortgages in 2005 but they are going to get a shock when they see their bills jump.Irresponsible lending has been rife and banks are tightening now with most fixed rates having high fees

Hecciesmum - I'm not sure about the collapse like a pack of cards. Yes there are lots of cheap deals coming to the end of their terms but this should also curb consumer spending - people having to pay for mortgage rather than things want/think "deserve" rather than essentials. There will be casualties - there always are - but it will be a good thing eventually if housing becomes a) more affordable and b) people buy according to affordability. But a quick and sharp fall in consumer spending is no good to anyone..

I think that rather than people thinking about the multiple of salary they can borrow they should actually work out how many months of a year they have to work to pay off the mortgage each year. Thinking that for the first 8 months of the year I am only working to pay off the mortgage really focuses the mind.

The collapse in the sub-prime market in US shows that the finance companies were just too greedy.

we are considering doing that noddyholder

we are mortgaged heavily, at a fixed rate of 4.69 which expires in jan 09 so not as soon as some, but if rates keep rising we will see no benefit from the saving we'll make when DTs start school and our childcare costs go down

Jan 09 is an interesting time to be finishing a fixed isn't it? As the interest rates take 12 - 18 months to kick in the change now will only be taking effect towards end of 08 - and this is the latest of many hikes so will interest rates be being cut by then?

There are many houses dropping their prices already here and we have been sent a few but are going to rent for now. It is not just that people have over stretched on their mortgages but have also released any equity they have built up to buy non necessary stuff like new cars holidays etc. Spending on credit cards was at its highr=est ever in the first 3 months of this year and it is usually higher in the last 3 months due to xmas.We have been sold a dream all based on rising property prices but it can't really continue as I think we are about to find out.

hecciesmum, what is the name of the report please?

I'm quite pleased secretly.

Not that people will lose their homes but perhaps this is the begining of the end to affleunza.

We can't all have everything.

Noodle - there are estimates in the market that c. 15% of the UK market is subprime....that's not an encouraging sign..

Sorry - I'm a bit of a Cassandra on this particular issue.

Noddy - I think you've done the right thing and I'm sure that 6 months from now we'll all be saying how cleveryou were with your timing. I work at an investment bank and have quite a few colleagues who are economists who have recently done exactly the same thing and are now just waiting.....