When do you think interest rates will go up and by how much?

[ihategeorgeosborne]

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.

They may be about that from an economics POV but George Osborne and V Cable have both admitted even a slight rise could produce carnage for many borrowers

I agree with a PP who said you don't use fixed rates to save money - you do it for certainty about what you are going to pay.

The banks don't know what interest rates are going to do either (although they can probably make a better guess than many of us!). So they'll price that uncertainty into the fixed rates they offer. On average then, you'd expect to pay a bit more using fixed rates - but what you gain is certainty about how much you will pay for as long as the fixed rates last.

So the question isn't so much what will interest rates do, but do you have enough leeway in your finances to cope with interest rate rises? If not, fix for as long as you can!

absolutely right. if you don't have stability you fix for as long as you think you need that stability. Silly to fix for two years with a view to then taking out another fix. Interest rates will go up and so that fix that is currently 5% above base rate will still be 5 percent above base rate, but instead of therefore being 5.5% will now be 7.5% (for example) because base rate is more likely to be higher

It's not silly if you can build up some equity in the mean time. We are paying a high interest rate because we only had 10% deposit. However, it's likely we can build up to 15% in the two years and therefore get a better fix if interest rates are the same or slightly higher. If they're a lot higher, well, we'll have lost that gamble, but I don't have a crystal ball.

But the deciding factor for us was that we can afford it if interest rates go up. Obviously it would hurt a lot, but we could pay 7%, or even 15% in the short term. If that's not the case, it would be wise to take the fix you can afford now.

didn't think about that fruitsalad, yes that is a valid point.

Yes I agree, a 5 year fix does offer piece of mind. It is about £100 a month more than the 2 year, but worth it I think. Our IFA said about fixing for 2 years and then getting some equity and fixing then for 5 years on a better rate. Obviously if bank rate shoots up in the meantime, there won't be a better rate! Fixing for 5 years should give us the piece of mind we need. As I say, I will be going back to work when dc3 starts school in 2015. I plan to do some voluntary work to update my skills when he gets his 15 hours from September. Dh will get a promotion at some point in the next few years, his manager has told him as much. As you say, we don't have a crystal ball. I have just reached the point now where we are happy where we are living. It is a great community and a nice place to live. House prices have not come down here at all. In fact they have gone up at least 10% since the advent of help to buy, as the sellers have factored that in to asking prices. I think the house we are looking at is well priced for the area, albeit a scary step for us. The rents here are around £1200-£1400 a month for a 3 bed semi. The house we are looking at buying has 4 bedrooms and the mortgage at current interest rates would be the same as rents. We could leave the area, but the dc are very happy at school and would be gutted. 5 years is a long time and a lot can happen. I don't know what will happen, which is why I've posted. I know no one else does either, but it's good to get the perspective of others and see what they have done / would do themselves if they were in our situation.