Anyone know how much mortgage interest rates might likely go up by over the next year?

[FreeBritnee]

We’re trying to move. Have accepted an offer on our house but cannot find a house to buy. We moved onto a variable mortgage rate (mortgage currently around 170k) so of course we’re moving into a situation where ideally we’d like to fix a mortgage before we get caught in the trap of increasing monthly payment but can’t find a house so may be in a situation where we have to stay put.

Anyone in the industry where they have any idea of what might happen. I know we need to try and control inflation but I know the economy can’t withstand interest rates that go too high. I lived through the crazy interest rates in the 1980s and am just so frustrated we might be forced to stay in an area we don’t want because of it.

I think anything more than 3% would be catastrophic for the country and it will be very slow rises

Average of independents predictions for bank rate is 0.37%, official OBR estimate is 0.1%. The range of estimates from independents is between 0.1% up as high as 2% for bank rate.

For same time period average of independent forecasts
CPI=2.6%, RPI= 3.6%.

The OBR is forecasting this lower (1.9 and 2.1)

I think the takeaway is that OBR forecasts look lowballed and rates might go up a bit more than their estimate suggests. Inflation may also go up more than their forecast currently suggests in 2022.

But forecasts are predictions- not fact. Your bank will stress test your affordability for extremes.

I bought a house in a small self-build development.

When I got to know the neighbours I found out that only two of the original families had managed to keep their homes after the Thatcher disaster. All the others had been unable to service their mortgages and had to sell up.

@Chronicallymothering

Average of independents predictions for bank rate is 0.37%, official OBR estimate is 0.1%. The range of estimates from independents is between 0.1% up as high as 2% for bank rate.

For same time period average of independent forecasts
CPI=2.6%, RPI= 3.6%.

The OBR is forecasting this lower (1.9 and 2.1)

I think the takeaway is that OBR forecasts look lowballed and rates might go up a bit more than their estimate suggests. Inflation may also go up more than their forecast currently suggests in 2022.

But forecasts are predictions- not fact. Your bank will stress test your affordability for extremes.

But

"BoE chief economist warns UK inflation likely to hit 5%

Huw Pill says bank will have ‘live’ decision on interest rates at November meeting "

www.ft.com/content/bce7b1c5-0272-480f-8630-85c477e7d69c

@Chronicallymothering

Average of independents predictions for bank rate is 0.37%, official OBR estimate is 0.1%. The range of estimates from independents is between 0.1% up as high as 2% for bank rate.

For same time period average of independent forecasts
CPI=2.6%, RPI= 3.6%.

The OBR is forecasting this lower (1.9 and 2.1)

I think the takeaway is that OBR forecasts look lowballed and rates might go up a bit more than their estimate suggests. Inflation may also go up more than their forecast currently suggests in 2022.

But forecasts are predictions- not fact. Your bank will stress test your affordability for extremes.

On stress testing, my bank stress tested my affordability for an interest rate 6%, despite the mortgage they offered me 3 weeks ago being at 1.7%. I did think at the time it was a bit odd then going that high, but perhaps they know something that the rest of us don't.

Either way, I hope it allows me to complete my house purchase in the next few weeks. Or I will be screwed!

Given the BoE base rate is low, interest rates are likely to stay low (this includes mortgages and savings). Work for a v v prominent bank

Rates might reach 1% by the end of 2022, but not more than that I don't think.

As others have pointed out, the level of mortgage debt relative to wages is far too high for interest rates to go up significantly. The banks would collapse as they would be left holding the deeds for all the devalued, repossessed properties. It would also throttle business who are still trying to recover from the pandemic.

Mid fifties here, I remember paying nearly 15% in the late 80s.it was a struggle and people lost their houses.

I have. Never ever forgotten, and this had a huge impact on any property we have bought or advised our children to buy since.

Rightly or wrongly I’ve always been “is it still affordable if interest rates go up?”

As a result we have probably underbought what we could have afforded, but I’ve always been able to sleep at night.

@HeronLanyon

I had a mortgage in the late 80s or early 90s at 15 or 16%. Also lived through gazundering and negative equity etc. Because of that I’ve always assumed interest rates could rise significantly. Doubt they will but I wouldn’t extend myself too much ever again.

Exactly the same as me!

First mortgage in late 70’s was only £10k but interest rate almost doubled in less than 2 years meaning payments doubled and term had to be extended. Learned from that experience to never over extend and have always stress tested to a much higher than predicted rate, also taking into account that living costs will increase. Also always overpaid even if by a very small amount which long term made an impact.

I read somewhere that there will be two small interest rate rises next year, 0.25% in February and June. I think that is quite likely, but who knows.

What speaking said. In spades. Also, I have always been solely responsible for my mortgage, which always made me extra cautious.

There have been times when I have regretted not extending myself more, but on balance I prefer to be able to sleep at night.

@Starseeking it’s in the affordability rules that mortgage providers have to assess whether you would be able to afford it on their expectations of interest rises over the following 5 years, with 1% being set as the minimum expected rise during that period. As most lenders’ follow on rates after you finish the fixed rate period are currently around 3.5-5% it seems sensible for them to look at 6%.

I bought a house in 2007 on 7.2% interest. We're currently paying about 1.25% and we've fixed it for 10yrs so we are trying to I overpay and reduce it before that expires.

It might not go up excessively fast, however it only takes a few months if interest increases to slow down the property market as well.

Have a chat with a mortgage advisor who is independent and ask about porting options and additional borrowing and get them to help you compare costs etc.

What I don't understand is that if inflation is caused by a global lack of supply of goods rather than an increase in demand for goods how will increasing interest rates have any impact on lowering it?

I don't think they will rise massively. When I first purchased in 2015, we fixed at 2.6% IIRC, and I can't see them even struggling back to those still very low levels for a good while yet.

@Sleeplessem

Given the BoE base rate is low, interest rates are likely to stay low (this includes mortgages and savings). Work for a v v prominent bank

The point is that the BoE rate is likely to rise.

Worked in banking long, have you?

Dick comment @Palavah but yeah I actually have, 5 years, and savings rates are going to be low for the next year at least

Interest rates on cash savings and mortgages were low prior to the pandemic too, so even when inflation rises interest rates are still going to be comparably low.

My fixed rate is ending in 2024. I am trying to chuck £1000 extra at the mortgage every month because my rationale is if the interest rate is much higher when I try to remortgage, there would be less of an impact if mortgage balance is as low as possible. Is this advisable.

And I am paying a small amount daily (which adds up to £1k per month) as I find it's easier to 'save' that way.

@Pokhora

What I don't understand is that if inflation is caused by a global lack of supply of goods rather than an increase in demand for goods how will increasing interest rates have any impact on lowering it?

Good question. Supply and demand are two sides of the same equation, so you can treat excess demand in much the same way as too little supply as they are effectively synonymous.

Much of the economy is driven by debt, be it consumer debt like credit cards and motor finance or commercial debt like bonds. If interest rates rise, debt becomes less affordable and not as many people will be able to access it or they won’t be able to use it to the same extent. So in this way increasing interest rates decreases monetary supply (ie what money is available for people and businesses to buy things) and therefore demand. Businesses will then decrease their prices to try to attract their lost customers.

The inverse is true as well. If interest rates are low then people can access finance more easily and there is little incentive to save so they buy more things and this increased demand causes prices to rise.

@TuftyMarmoset

Now that we more integrated in the global economy, I'm not sure that the uk raising its interest rates will make much difference. The cost of basic essentials (energy, petrol, food etc), many of which are imported, are going up, so many business will not be able to reduce their prices. Wages will have to go up, which will put pressure on business to increase prices further.

One thing is for sure they can only go up.

Is a discounted tracker an option for you?
It was pointed out to me years ago, Banks will only ever Fix at a rate they don't believe they will loose.

@TufyMarmoset
The above however assumes that businesses have the ability to reduce their prices. If prices are going up because of increased energy costs, labour costs and other costs of production and profit is getting squeezed the resultant impact of reducing consumer demand (through higher interest rates) is for the businesses to cease trading as they will not be able to afford to lower prices.

I assume this is what is meant by stagflation.

@Lockdownbear

One thing is for sure they can only go up.

Is a discounted tracker an option for you?
It was pointed out to me years ago, Banks will only ever Fix at a rate they don't believe they will loose.

In theory true but looking at current advertised rates, i'd say it would be madness to not fix. Nationwide for example, 65% LTV, fee'd tracker mortgage is 1.49%, 5 year fixed 1.16%... I think most would agree we are entering a period of potential instability; record high commodity/market prices, massive real inflation disconnect etc.

Who knows what might happen but I can't see fixing at 1.16% being a bad move....