What do you think mortgage rates will be in 4 years?

[BergamotMouse]

I realise no one can predict but do people think they will drop by then or is this the new normal? Might they just keep increasing.

We hugely stretched ourselves 6 years ago and went onto a 10 year fix at 2.5%. We will be able to afford at about 5% as salaries have gone up etc but will mean no holidays etc (we haven't had one for 5 years as it is)

As our pay and childcare commitments have changed we have started to overpay and are trying to save what we can to remortgage a lower amount.

But the uncertainty is stressing me out. We won't be able to afford it if it reaches, for example, 8% - is this a realistic possibility?

Swap rates are showing it dropping a little from current levels. Obviously that is just a current view and things can happen in the next 4 years to throw it off course again

I think 5%, but I don't think 8% is an outlandish possibility so I think you're right to focus on saving now.

Given that neither the Chancellor of the Exchequer nor the governor of the Bank of England would be able to answer that question with any confidence, your guess is as good as mine, OP.
The only thing which might be said with any confidence is that the ultra-low interest rates which applied during & immediately after covid are very unlikely to return for the foreseeable future.

Don't overpay on 2.5%, put money in a savings acct which should have a higher rate of interest. Start doing a proper budget, work out what can be cut back (netflix, review broadband and mobile deals etc) in 6 months look at all your outgoings and work out where you can save a few quid and save it.
Then work out what your mortgage balance will be in 4 years, then do test scenarios ranging from mortgages rates from 4%-10% play with the length of the mortgage if you can, start trying to work out how you would balance the books on the worst case scenario of 10% (this is hypothetical but plan for the worst and hope for the best). Essentially you are giving yourself 4 years to prepare yourself, if you start today you will be fine, unannounced surprises are my least favourite situation.

Very unlikely to be 8%, I stressed about this for months before we remortgaged last month. I work in financial services too so am constantly bombarded with interest rate info. Current consensus is around 4-5 as the new normal.
Don't overpay on 2.5%, put into a savings account with a higher rate of interest, then pay off a lump sum when you remortgage if you can and over pay when you are at the higher rate. This is what we did. We have gone from 2% to 4%

I think it will average 4-5% over the long-term - this should hold true as long as the BOE get inflation down to approx 2-3%. Most experts predict The long period of ultra low interest rates was an anomaly, not the norm.

while inflation is so much higher than interest rates, interest rates need to increase or the people lending the money are giving you money for nothing. Until inflation is less than interest rates, savers/lenders are subsidising borrowers and there will be upward pressure on interest rates.

on a positive note, Swap figures are showing a small fall in interest rates and global inflation (food and energy prices particularly) are falling. While I agree Truss etc was an absolute twit, who should be prosecuted for crimes against the Uk economy, it is the global issues (Russia/ Ukraine, China/US, the US economy and the global fallout from the pandemic) that will be the main drivers of inflation and interest rates. The UK is an influence on the world economy now, but not a main one. In summary the UK government can make things worse (Truss) but not sort things out.

Who knows really but my feeling is that they'll have improved from current levels in 4 years time.

I was taught that interest rates need to be around 2% higher than the inflation rate (6.8% atm) to be sure of bringing down inflation. Nobody wants that, so the BOE are hoping it comes out alright without going that high.
Its likely interest rates will be in the 4-7% at any given time, so that’s probably where I would say.

The average historical BOE base rate from 1971 to 2023 is actually 7.11%

Mortgage rates are of course always higher than the BOE base rate.

In normal times people expect to get 5% interest on their savings.

Most people have not felt any mortgage rate rise pain yet as we tend to be still all on low fixes, mine ends later this year.

It is taking a lot longer for any inflation to reduce than even the BOE expected.

I therefore think mortgage rates will continue to rise for the next two years. We are not getting any talk about repossessions in the media yet.

If we get to hover mortgage rates around 7% that is still lower than the historical average - as that is even below the average base rate.

I think I would take a 5 year fix now rather than a 2 year fix as “the current consensus” keeps getting revised upwards each month.

NO one can answer this really.
But would be surprised if its higher than what it currently is in 4 years time. But you never know....

Repossession statistics are available on gov.uk

It shows a 40% increase in the first quarter this year compared to last year. However, this should be compared to pre-Covid levels where it is at 66%.

On the other hand, the interest rate rises have not filtered through the majority of fixed rate mortgages and the impact will only begin to show a few months after people are forced onto a much higher rate. This could potentially turn very ugly if rates do not come down soon.

I did a while back they would go to least 6% and people on here said no way

i think they will fall again to maybe 4 in. A few years so I would fix longer now rather than 2yrs

guess if they did rise you could maybe extend mortgage term?

Definitely keep saving /overpaying. Whichever suits you best). We are 5 years into a 10 years fix-i am doing a mix of overpaying and saving. Overpaying might not make as much mathematical sense but I like that those payments are "gone" and we can't be tempted to spend them on something else.

But also in that time hopefully your salaries might go up too?

Main estimates I am hearing over that time are 4-5% , but of course noone has a crystal ball.