What do you think will happen to interest rates over the next few years?

[nikos]

We're currently on a lifetime fixed rate with Northern Rock of just under 6%. We have 13 years left to go and want to make our final house move and increase the size of the mortgage. If we pay redemption fees on this mortgage (about £4000) then we can go onto a rate of 2.59% for 2 years with no tie in, so we could shop around for another mortgage at the end of the 2 years or negotiate with NR.
But FIL said today that interest rates are predicted to go up to 8%. But dh reckons if they go up it will be by very small increments or the economy will collapse even further.
What do people think will happen over the next few years?

I think I get what you are talking about Hilda. We want to buy in a really desirable area which traditionally holds its price, although they have come down from a few years ago which is why they have even come up for our consideration.
We were thinking if we put more on interest only (about a quarter of the purchase price), that when we want to downsize when the kids are away, we can sell up and pay IO bit off. As mama said it will seem small in about 15 years time and if you as not ready to sell the banks just leave you continue to pay it off like rent.
We would also look to purchase a buy to let which would hopefully mature in 15 years. Property does tend to go in a 10 year growth and fall cycle.
Would love to know what otrhers do.

If you look at the last major downturn in the UK property market, then the 1987 stock market crash led to a recession in 1989-90. The bottom of the property market in real (inflation adjusted terms) was between 1994-96. So it could be another 4y+ before house market hits bottom.

Problem with buying any house long-term is that houses prices are stongly tied to where long term bond yields are. These have been in secular bull rally for 20y+. They can't go much lower unless if we get delation. And if we get deflation the last think you want to own is a house with IO mortgage!

Mar-12 expiry short sterling contract is pricing 3m Libor to be 1.45%. Its currently 0.72%, so market is looking for perhaps 75bp of hikes over next 18 months.

Siasl - you don't happen to know the lottery numbers for Saturday's draw too do you ?

mamatomany what was your annual/household salary in 1990? Thats the affordability factor you should be looking at when you look back wistfully at your past decision.

It was less than £6k I was a student, I agree affordability is a massive consideration but if i'm honest, looking back i wish i'd borrowed £60k and turned that into a £600k house but unfortunately back in those days i and the banks were more cautious.

Mama - hahahaha

As others have said, UK might have its hand forced - if Euroland and US raise their interest rates the Pound would be trashed if the BOE didn't follow suit with rises. We are little fish and will need to swim with the shoal.