Interest rates
Discussion
Is it me being overly cautious thinking we are about to get a big shock with the rates? I am no expert but whilst on the verge of taking a big plunge,I am very concerned with what the rates will do.
If I took any notice of the doom mongers on www.debtbombshell.com , or www.housepricecrash.com or the various threads on here and elsewhere,I am pretty damned spooked!!!
This is what the experts say and forecast.
From This is money:
Swap markets reflect the City's bank rate expectations. They price in rates to be 1.25% by late summer 2011. Latest: Various forecasting bodies have made upbeat prediction for the economy in recent weeks - the NIESR (9 April) and the CEBR on 16 April. The markets began factoring in a slightly higher chance of rate rises but that soon evapourated with forecasts of rates in five years at a new 2010 low.
Opinion: Inflation is a concern, but there's good reasons why rates will remain lowI've listed some historic swap rate prices to show how the market moves as economic prospects shift. Broadly speaking, the chances of a rate rise have receded since the start of the year:
January 26 (weak economy figures)
• 1.67% in two years
• 3.05% in five years
Source: Bloomberg
January 28 (inflation warning)
• 1.78% in two years
• 3.16% in five years
February 10 (downbeat BoE inflation report)
• 1.59% in two years
• 3.01% in five years
February 17 (3.5% inflation announced)
• 0.94% in one year
• 1.58% in two years
• 3.01% in five years
March 5 (Day after rates were held)
• 0.89% in one year
• 1.68% in two years
• 2.99% in five years
March 11 (after inflation survey)
• 0.87% in one year
• 1.64% in two years
• 2.97% in five years
March 30 (UK economy better than expected)
• 1.05% in one year
• 1.59% in two years
• 2.88% in five years
April 13
• 1.06% in one year
• 1.61% in two years
• 2.94% in five years
April 16
• 1.03% in one year
• 1.55% in two years
• 2.88% in five years
April 20 (After surprise inflation rise)
• 1.05% in one year
• 1.59% in two years
• 2.92% in five years
Read more: http://www.thisismoney.co.uk/interest-rates#ixzz0l...
If I took any notice of the doom mongers on www.debtbombshell.com , or www.housepricecrash.com or the various threads on here and elsewhere,I am pretty damned spooked!!!
This is what the experts say and forecast.
From This is money:
Swap markets reflect the City's bank rate expectations. They price in rates to be 1.25% by late summer 2011. Latest: Various forecasting bodies have made upbeat prediction for the economy in recent weeks - the NIESR (9 April) and the CEBR on 16 April. The markets began factoring in a slightly higher chance of rate rises but that soon evapourated with forecasts of rates in five years at a new 2010 low.
Opinion: Inflation is a concern, but there's good reasons why rates will remain lowI've listed some historic swap rate prices to show how the market moves as economic prospects shift. Broadly speaking, the chances of a rate rise have receded since the start of the year:
January 26 (weak economy figures)
• 1.67% in two years
• 3.05% in five years
Source: Bloomberg
January 28 (inflation warning)
• 1.78% in two years
• 3.16% in five years
February 10 (downbeat BoE inflation report)
• 1.59% in two years
• 3.01% in five years
February 17 (3.5% inflation announced)
• 0.94% in one year
• 1.58% in two years
• 3.01% in five years
March 5 (Day after rates were held)
• 0.89% in one year
• 1.68% in two years
• 2.99% in five years
March 11 (after inflation survey)
• 0.87% in one year
• 1.64% in two years
• 2.97% in five years
March 30 (UK economy better than expected)
• 1.05% in one year
• 1.59% in two years
• 2.88% in five years
April 13
• 1.06% in one year
• 1.61% in two years
• 2.94% in five years
April 16
• 1.03% in one year
• 1.55% in two years
• 2.88% in five years
April 20 (After surprise inflation rise)
• 1.05% in one year
• 1.59% in two years
• 2.92% in five years
Read more: http://www.thisismoney.co.uk/interest-rates#ixzz0l...
fido said:
Jon C said:
3% is a big shock? Blimey, when I bought my first flat they were >14%
But you probably took it out when rates were 7%. When most of your monthly payment is made up of interest, then it's going to hit you alot harder.andy c said:
Jon C said:
3% is a big shock? Blimey, when I bought my first flat they were >14%
Only 3% would be a result! My rate was 16% in the 90s.I was 2 over base then.Its the double digit rates I am concerned with.Today house prices and lending criteria for a long time have reflected sub five percent rates. Most peoples mortgages reflect this.
So...
Eight percent now would be as devastating to mortgage payers and the housing market as sixteen was back then.
I think it's important to remember a mortgage is ordinarily a long term commitment and you can't make a decision to commit based on an assumed rate over a three or five year period.
It's very likely that interest rates will increase over the next X years to 4, 5, 6, 7, 8 or even higher (we just don't know what's around the corner!), but just as they rise they will at some time fall.
From memory over the last 25 years the average mortgage interest rate is somewhere around 11% (I stand to be corrected) and if you are hedging your bets against a 3% interest rate - don't commit to a mortgage, or understand the process and be done with it.
That is unless I don't understand the OP's thoughts here?
It's very likely that interest rates will increase over the next X years to 4, 5, 6, 7, 8 or even higher (we just don't know what's around the corner!), but just as they rise they will at some time fall.
From memory over the last 25 years the average mortgage interest rate is somewhere around 11% (I stand to be corrected) and if you are hedging your bets against a 3% interest rate - don't commit to a mortgage, or understand the process and be done with it.
That is unless I don't understand the OP's thoughts here?
M-J-B said:
From memory over the last 25 years the average mortgage interest rate is somewhere around 11%
That was some time ago. Every successive year of low rates brings that average down. I have seen seven percent quoted for 1985 to 2010. The very long term average is closer to six percent though this does go back to times that are not really comparable to today.The longer rates stay low the less likely they are to climb high quickly. Everyone (who actually has a significant mortgage) thinks that rates under five percent are normal and that much over that is "high". Trouble in the eighties was when rates climbed into double figures, trouble now, after over a decade of very low rates, will start at five percent. Politicians will do everything they can to avoid this trouble.
The annual average since I bought my first house is around 7% and my peak was 15.4%, and I think most intelligent people are fairly certain they will rise after the election. The Bank of England are supposed to use interest rates to control inflation and keep it under 2%, it's currently 3.4%-4.4% depending which measure you believe, although for most of us it's probably higher.
I'd expect most mortgages to be 6-8% next year, but who knows, maybe the taxpayer will continue to subsidise the BTL tycoons and over-stretched whilst punishing the pensioners and other savers? After all, life isn't fair!
I'd expect most mortgages to be 6-8% next year, but who knows, maybe the taxpayer will continue to subsidise the BTL tycoons and over-stretched whilst punishing the pensioners and other savers? After all, life isn't fair!
-Pete- said:
I'd expect most mortgages to be 6-8% next year
You are ignoring the people who control this rate. Politicians. Rates that high will have the same effect today that rates of 15 percent had twenty years ago.
Consider:
1990 50K mortgage at 10 percent - in trouble at 15 percent
2010 125K mortgage at 4 percent - in trouble at 6 percent
Older people often think that high rates are 15 percent because that is what high means in the first example. However, high today is the second example, after a decade of low rates and easy lending six percent is very high!!!
Politicians may pretend this isn't true but they know that if they are tarred with the "repossesions" brush then they will be out for three terms.
They won't allow that to happen.
I'm fixed until end of term so it doesn't affect me, but I expect mortgages to be 6-8% because I expect BoE to be forced to raise base rates to 4-6% to control inflation and support Sterling. After the election, there's going to be a lot of changes, whoever wins, and lending money at less than the rate of inflation can't continue IMO.
cymtriks said:
Older people often think that high rates are 15 percent because that is what high means in the first example. However, high today is the second example, after a decade of low rates and easy lending six percent is very high!!!
Politicians may pretend this isn't true but they know that if they are tarred with the "repossesions" brush then they will be out for three terms.
They won't allow that to happen.
Politicians might not have that amount of control over interest rates, ask the PM of Greece.Politicians may pretend this isn't true but they know that if they are tarred with the "repossesions" brush then they will be out for three terms.
They won't allow that to happen.
NoelWatson said:
cymtriks said:
The longer rates stay low the less likely they are to climb high quickly.
Don't understand this?Loans get taken out at low rates for 15 years
Lending criteria reflects low rates for 15 years
After 15 years a six percent rate becomes as damaging to the house market and the economy as sixteen was 20 years ago.
The electorate and politicians still remember the late eighties and early nineties as a time of high rates, bad politicians and repossions.
The longer rates stay low the more political will there will be to keep them low. If they can't keep them low then the next best thing is let them grow slowly.
What it really boils down to is how much are politicians willing to do, or capable of doing, to stay in their jobs.
Also, a lot of offset/fixed rates are still over 4% when base is 0.5%, i think lenders will find it hard to justify having the same gap should base be 5% for example. IIRC when i first got my mortgage base was much higher yet the gap between that & the rate we were paying was much smaller.
Still, if you aren't pricing in big increases when taking out the loan then you are on risky ground.
The way some on here go on it would seem a rate increase of just 2% would cripple people.
Who in their right mind thinks rates will stay low for the period of a 25 year loan?
Still, if you aren't pricing in big increases when taking out the loan then you are on risky ground.
The way some on here go on it would seem a rate increase of just 2% would cripple people.
Who in their right mind thinks rates will stay low for the period of a 25 year loan?
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