Would you take on a variable rate mortgage at the moment?

[hopefully]

My best friend has just asked my advice on this, and my instinct is to say not in a million years, as economic conditions are so unpredictable.

However, BBC news has a story today suggesting that if interest rates do anything, they'll fall, which will benefit someone on a variable rate.

I'm still dubious, as they'd be stretching themselves a bit with this rate (although they could cover a couple of percent increase in interest rates without monstrous drama). They can't get a fixed as they have less than perfect credit records.

Incidentally, I am glossing over my general horror at someone contemplating buying a house at the moment when they don't have to, and plan on selling (at a profit) in 3-5 years, but that's another story. If anyone has a polite way of phrasing 'are you out of your mind' I'd be interested to hear it!

Yes - and have.

The fixed rates are now very detached from the bank interest rates - quite significantly in DH opinion and he spends alot of time looking at this sort of thing.
There are some very attractive variable rates around and the redemption penalties are often less punitive than with a fixed rate if you think that you are going to move etc within the life of the fixed rate, make overpayments etc

At the moment interest rates are keeping steady - we need to keep low to keep inflation down.

not if i had the choice, but the fixed rates are not that good at the moment either. maybe a tracker?

yes and I'm about to.. just waiting for the paperwork to come through.

Wouldn't buy now with making a profit in mind though, I'm remortgaging

oh I think the one I've gone for is a tracker actually..

I'd take on a variable rate if I could afford current payments with room to spare, and could continue to afford comfortably if rates increase.

I think your friend is being foolish if she's considering a starting rate that is a financial stretch.

Does she understand the concept of negative equity?

They are totally burying their heads in the sand about the prospect of anything like negative equity/alarming interest rates. It's really difficult, as they've wanted to buy for a while, but I really feel they'd be better off accepting defeat for another year or so until credit record is better and market maybe a little more predictable. It's so frustrating watching someone make a financially unhealthy decision! In my opinion of course, will feel silly if I'm entirely wrong...

On the other hand, good news about the mortgage, judging from opinions, assuming they're telling the truth about being able to afford interest rate increases.

Do you lot reckon the rates available are going to come down then? Our mortgage is on a variable at the moment and it's only about £100 a month more than the fixed rates we've been offered, so I was thinking of waiting a bit until we see what happens and then plumping for a fixed rate once there are some cheaper ones on offer. Do you think that's sensible? I am rubbish at things like this.

too difficult a climate to say lucicle - i wish I knew!

Whatever we all choose, we are taking a risk but one of the reasons i am on a fixed is if there is an increase in interest rates, i would be so worried. This way, at least I know I have to find x amount for the next five years without the worry of getting a letter saying next month I need to find however much more.

Of course if the interst rates come down, then I would prob kick myself but would rather a fixed than living on tenderhooks as to what is happening next.

As I said in my previous post he fixed rates are relatively expensive at the moment compared to the base rates - they have become very detached. If you can hold out a bit longer you might well find the fixed rates coming down too if you want that certainty.

i have one, and we took it as we were in good position at thre time and coud be flexible in payments, however, be warned ours went up by £150 in 6months!!

yes, that's the thing. If you have leeway for ups and downs it could be a good idea to be on a variable rate, but if you are pretty much maxed out, then no way would i consider it.

I can't see rates falling soon due to the fact the pound is falling. If anything the BOE should increase rates to stop this happening but they can't because of inflation, that is why it has held at 5% for a while now.

If inflation begins to level of towards the end of the year as forecast, but if the pound is still falling at this time then we may even see a rate increase.

Mortgage interest rates ,however, don't really reflect those interest rates(except maybe BOEBR trackers) and no one can know for sure what he future holds, so decisions on fixed or variable rates should be based on your ability to make repayments whatever way interst rates go.

Can you get a capped rate?
We are on one, so it can't go above 5 point something % but will come down if rates do. It tracks at 0.24% above the base rate (up to the cap)

It's a good question. If you look at the sterling yield curve it seems that the markets (i.e. the people that should know) are predicting that interest rates will come down over the next 1-2 years. If they're right then clearly it's better to be on a variable rate or tracker mortgage rather than a fixed, particularly given the disconnect between fixed rates and base rates at the moment. On the other hand, there are those in the market and the media who think that base rates are going to have to rise in response to inflation, particularly if wages start to follow prices.

Personally I'm also inclined to think the same. It's really a bet on how bad the current economic slowdown is going to get vs. how bad inflation is going to get. Inflation is going to get worse in the short term, no question about that, but the BoE recently came out and said whilst it's going to top out at about 5%, it'll start to come back down early next year. On the other hand, I see the slowdown definitely getting worse faster than inflation will be going up and also not improving until middle of next year at the earliest. If you agree, then variable rates are almost certainly the way to go.

I'd also add that the fact that nobody really knows which way rates, inflation and the economy will go for certain are the reason that fixed rates are disconnecting from base rates - banks are scared about locking in costs of funds in an uncertain environment and are demanding a premium for doing so.

Always be wary of what the people 'in the know' say publically.

At the beginning of the year they were saying house prices won't drop, but at the same time they were selling up and renting. By the time they publically admitted prices would fall (after they had sold) it was too late for the rest of us to do the same as the market had already turned.

we've just taken out a 2 year fixed rate one, this is the first time though, previously always gone for a tracker. but we are mortgaged to the hilt, didn't want to take the risk of a tracker this time, as even just a slight rise in the rate, makes quite a big difference in our repayments

God, it's so complicated. I think we might need to start looking for a fixed rate soon as I just find it really stressful not knowing what the amount is going to be each month. But I so don't want to do that and then find the rates coming down and us stuck for two years or whatever! Gah. Why haven't any of you got a crystal ball?!

CD, do you mind sharing who that was with? or did you take it out a while ago?

I'm looking at a tracker of base + .69 for life

National Counties building soc
It was last year IIRC