Anyone want to join me in some interest rates speculation?

[MegBusset]

DH and I are currently debating what to do about our mortgage. We got a 5-year fix two years ago at 5.29% - just before interest rates plummeted, sigh.

The penalty payment to buy ourselves out of the fixed rate has just dropped so it's now £3,500. We could go on to a tracker 1.99% above base rate ie 2.49% which would obviously cost less but we would obv have to repay the extra £3,500.

If interest rates stay low then this is worth doing but if they go up then we could end up paying more in the long term!

So who reckons rates are going up soon, or are they going to stay low for years...?

Do you have the £3,500 or would you be adding it to your mortgage because, if you are adding it, it works out at a lot more than £3,500 over the long term.

If you look at historical precedents, they should start going up soon but they are at a historical low so it's very hard to say. I'd err on the side of them being higher this time next year.
www.bankofengland.co.uk/monetarypolicy/decisions/decisions10.htm
and have a read about what they've been saying about their decisions, next one out tomorrow I think.

UK interest rates will stay low for years. We are heading into a deflationary depresson during which the price of all wages, goods, services and assets will fall relentlessly.

To see what will happen, look at Japan where their interest rates fell from 6% in 1990 to zero in 2000 and have stayed there ever since with no prospect of them being raised in the forseeable future.

How much is your mortgage for? Unless it is very large you probably wont save much more than £3500. I do think they will go up slightly but not to the levels they have in the past.

nationwide just upped their lower fixed rate- by 1% - obviously they expect the bank rate to rise.

The bank was quoted as anticipating rises later this year....

i think the one thing you can be sure of, is that they won't get any lower than now!

Beenbeta - I wouldn't be so sure that we will go into a Japan type deflation. Might happen but might not. We're certainly not following Japan so far with a massive house price crash, although that still might happen too. Also, if the other major currencies start to rise rates and the Pound is getting trashed because no one wants to be in the currency with the lowest interest rate, the BOE is very likely to follow with rises.

Sorry went to bed early last night and missed the replies!

Mortgage is £130,000 (it's an offset mortgage and that's including the offset value of our savings). So the extra 3.5k would either go on the mortgage or come out of our offset savings, makes no odds either way. We are overpaying each month and have calculated that it would in effect take 10 months to repay the 3.5k after which we would then be saving a couple of hundred quid a month. So the potential saving over 3 years is thousands -- if rates stay low!

it also depends on your risk element - we fixed ours knowing we couldn't afford an interest increase of more than 1.5% (probably something it would take time to do, but then if your mortgage provider ups their fixed rate options with it....not something to gamble on) - and are happy we did as they pulled the lower rate two weeks later -

if you can afford to chance it for longer, as you must be whilst making overpayments, then you could do very well by holding out before remortgaging.

although there has been a 3 month slide in sale prices, i don't see a crash as such as there is still plenty of demand (stifled by affordability concerns...) low interest rates mean people make more money from putting large cash sums into property, than letting them fester on low interest rate bank accounts....those that have such funs available though.

actualy having read your OP again - if i could afford the stability offered by 5.29% for 3 years, i'd be content with that - historically this is still a relatively low rate.