Interest rates - medium to long term, guesses.

C

Colgates_shaving_foam

Well-known member
I need to sort out a new mortgage soon and I'm trying to decide how long to fix it for.

My guess is that the base rate will probably not be lower than it is right now for at least 4 years? Maybe? Meaning a 2 yr fix might leave me open to paying quite a bit more in 2 years time.

I'm leaning towards a 5yr fix even if that means potentially slightly overpaying for the final couple of years or so, probably safer to go this way than be exposed to wherever we might be in 2yrs.

Of course it's all a load of guess work and no advice being sought as such but I'm ineterested in knowing what your thoughts are on it.
 
I sorted a remortgage application the day before the recent increase to rates and went for a 5 year fix. I went to a presentation with Equifax a few weeks ago and their lead economist was forecasting inflation rates to remain high through 2023, with plenty of uncertainty around 2024. I think I’m total my monthly payment has gone up around 10%, but prefer to have some certainty around my biggest monthly outgoing.
 
I,ve just Remortgaged for 5 years @2.99 % , its not a massive amount I owe roughly 35k and didn't borrow any extra and kept remaining mortgage term of 10 years, saving around £8 a month which is largely irrelevant , I just wanted piece of mind going forward , my old mortgage company was sold to a non mortgage provider ,and whilst it was a good rate , its obviously just going to keep on creeping up going forward.
 
Can’t see the base rate going above than 3%. The increase in energy cost in itself will ease consumption, without the need to riase interest rates. If the rates go to 5/6% you could see a lot of mortgage defaults coming into play.

I think your best bet will be a 2 year fixed, but who knows it all hedges on the war.Should that come to an end this year (highly unlikely) and Russian sanctions removed then inflation will reduce dramatically.
 
Personally think the days of low interest rates are a thing of the past now. Even now, compared to historical rates they are low. I think even a 10 yr fix would be prudent for some. Luckily mine will be paid off in 4 yrs so I will fix for 3.
 
Markviduka said:
Can’t see the base rate going above than 3%. The increase in energy cost in itself will ease consumption, without the need to riase interest rates. If the rates go to 5/6% you could see a lot of mortgage defaults coming into play.

I think your best bet will be a 2 year fixed, but who knows it all hedges on the war.Should that come to an end this year (highly unlikely) and Russian sanctions removed then inflation will reduce dramatically.
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I think youll be surprised. Its 1.75% now, I could see it soaring past 3%. The last few years has been the lowest its ever been. It wasnt that long ago (30 years) it was up about 15%, even higher in the late 1970's
 
As I said on the other thread do what, I’m a mortgage adviser. I will never advise anyone I want I think interest rates will do. It’s hypothetical and ultimately no I’m really knows what they will do

You need to think about your circumstances and what fits it. If you think rates are going up, how long do you need to protect against rises. For example 5 years ago I needed protecting against rate rises for 5 years as knew I would have 2 period of maternity for the family in that time

So as a mortgage adviser I probably won’t give you the answer you want as wouldn’t want to share what I think interest rates would do.
 
GazC_MFC said:
As I said on the other thread do what, I’m a mortgage adviser. I will never advise anyone I want I think interest rates will do. It’s hypothetical and ultimately no I’m really knows what they will do

You need to think about your circumstances and what fits it. If you think rates are going up, how long do you need to protect against rises. For example 5 years ago I needed protecting against rate rises for 5 years as knew I would have 2 period of maternity for the family in that time

So as a mortgage adviser I probably won’t give you the answer you want as wouldn’t want to share what I think interest rates would do.
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That's it, it's purely people's guesses that I'm looking for as to what the base rate might do as that's all I need to consider really.

I don't forsee my circumstances changing particularly, apart from maybe losing job if the economy crashes which it might well do, but then almost all of us are in that boat.
 
Colgates_shaving_foam said:
I need to sort out a new mortgage soon and I'm trying to decide how long to fix it for.

My guess is that the base rate will probably not be lower than it is right now for at least 4 years? Maybe? Meaning a 2 yr fix might leave me open to paying quite a bit more in 2 years time.

I'm leaning towards a 5yr fix even if that means potentially slightly overpaying for the final couple of years or so, probably safer to go this way than be exposed to wherever we might be in 2yrs.

Of course it's all a load of guess work and no advice being sought as such but I'm ineterested in knowing what your thoughts are on it.
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I fixed for 5 years on a BTL around Feb, which was quoted in Dec 21, then the one I live in fixed around April for 5 years also, similar rates.

The way I see it (and the BOE see it) is the rates are only going one way, up. The base rate's expected to go to 4% by summer 2023, and may even not stop there. Even if base rates drop back to where we are now, in years 3,4,5, then a new mortgage deal would be similar rates, to what is being offered now. Can't see BOE base rate going back below 1% anytime soon, even 1.75% now is a steal, compared to historical rates. The protection offered for the base rate going to 4%-10% is worth its weight in gold, for me.

Mortgage companies will know the BOE's prediction of course, so will probably be insuring against those by offering higher rates than they otherwise might do, based on the same BOE base rate.

Just be careful of the redemption/ early payment charge, in case you plan to sell in the near future, but you can often port the mortgage over to a new property.

Obv, don't count the above as financial advice, I'm not a financial advisor, but it's what I would do (and what I have done), and I've never had my FA disagree with me (he's often doing the same thing as me), but each person's circumstances are very different of course.

If you can afford the 5-year rate, with little issue, then I'd lock that in, if you don't it just seems like taking a lot of risk for little to no reward.
 
Colgates_shaving_foam said:
That's it, it's purely people's guesses that I'm looking for as to what the base rate might do as that's all I need to consider really.

I don't forsee my circumstances changing particularly, apart from maybe losing job if the economy crashes which it might well do, but then almost all of us are in that boat.
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Ye when you have no changes no pension to take unlikely to have inheritance coming your way you have to go on what you feel.

Really tough to decide
 
Andy_W said:
I fixed for 5 years on a BTL around Feb, which was quoted in Dec 21, then the one I live in fixed around April for 5 years also, similar rates.

The way I see it (and the BOE see it) is the rates are only going one way, up. The base rate's expected to go to 4% by summer 2023, and may even not stop there. Even if base rates drop back to where we are now, in years 3,4,5, then a new mortgage deal would be similar rates, to what is being offered now. Can't see BOE base rate going back below 1% anytime soon, even 1.75% now is a steal, compared to historical rates. The protection offered for the base rate going to 4%-10% is worth its weight in gold, for me.

Mortgage companies will know the BOE's prediction of course, so will probably be insuring against those by offering higher rates than they otherwise might do, based on the same BOE base rate.

Just be careful of the redemption/ early payment charge, in case you plan to sell in the near future, but you can often port the mortgage over to a new property.

Obv, don't count the above as financial advice, I'm not a financial advisor, but it's what I would do (and what I have done), and I've never had my FA disagree with me (he's often doing the same thing as me), but each person's circumstances are very different of course.

If you can afford the 5-year rate, with little issue, then I'd lock that in, if you don't it just seems like taking a lot of risk for little to no reward.
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You slightly contradict yourself in a sense there

If you expect rates to be dropping and Bank of England base be similar it’s unlikely (by your thinking) that the margin would be the same

Because you say

Banks are charging a higher margin because they expect rates to go up.


In addition I have a paticular problem with you saying I’m not a financial adviser but I think you should go with a 5 year fixed, effectively advising
 
I'd lock in for 5 years to get rid of uncertainty. Worst case: you slightly over pay. Best case: you avoid a huge and unaffordable increase.

Exception to that is if you've got a high LTV and you might cut it enough after two years of repayments to get a better deal.
 
clay said:
I'd lock in for 5 years to get rid of uncertainty. Worst case: you slightly over pay. Best case: you avoid a huge and unaffordable increase.

Exception to that is if you've got a high LTV and you might cut it enough after two years of repayments to get a better deal.
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Why 5 and not 10?

If you think rates are going up, is the difference in ltv brackets enough to review again after a couple of years? No guarantee that the deal will be better
 
GazC_MFC said:
Why 5 and not 10?

If you think rates are going up, is the difference in ltv brackets enough to review again after a couple of years? No guarantee that the deal will be better
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OP didn't give 10 as an option, but yes, I'd be looking at it.

LTV is most likely a factor if they are currently at ~90% ish
 
clay said:
OP didn't give 10 as an option, but yes, I'd be looking at it.

LTV is most likely a factor if they are currently at ~90% ish
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Unlikely for the ltv to drop to 80% in 2 years, unless properties go up in price

If they go down could find yourself at 90% or above

So shorter is more of risk if prices come down, signs of the market stagnating just now, and if you go above 90% your stuck with you lender potentially.

If that was a concern then a longer term fixed gives you the opportunity to chip away at the capital.
 
GazC_MFC said:
You slightly contradict yourself in a sense there

If you expect rates to be dropping and Bank of England base be similar it’s unlikely (by your thinking) that the margin would be the same

Because you say

Banks are charging a higher margin because they expect rates to go up.


In addition I have a paticular problem with you saying I’m not a financial adviser but I think you should go with a 5 year fixed, effectively advising
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I don’t think mortgage rates will go down, I think they will go up, in line with base rates, at least hand in hand, maybe even a wider margin to insure them against risk. I suppose no bank likes having lent out money for a rate less than the market is, or will highly likely be.

Even if base rates came down to where we are now, after a 3-5 year cycle up and then back down, then I still think mortgage rates would be higher than they are now. I think they might tighten up on risk, similar to the financial crisis, but not to the same extent. I don’t see much reason for a housing crash, demand is still high, and supply low. New houses will also get their costs jacked up by inflation.

I’m just saying I fixed for 5 years, and if I had choice now, I’d be even more inclined to do it now, than even what I was thinking in Nov/ Dec 21. I suppose before it was just a risk, but now the risk is rapidly being realised.

Like I say though, not a FA, but would advise he goes and sees one, I still do as a sanity check against my economic outlook. I’m more worried about 6%+ base rates in 2024, rather than missing out on overpaying by 1% if it went back down.
 
No doubt the Base Rate trend is upwards. Plenty of economists are talking about a Base Rate of between 4% and 5% by the summer of 2024.

Some other things to consider though - the level of support that the government offers to mitigate the energy cost rises. If the government offers very little, the BoE will not want to put banks in a position where they are having to foreclose on a lot of mortgagees who can't pay both their energy bills and the mortgage. If the government offers more help for energy bills, then the BoE has just a little bit more leeway. If the government goes to freeze the price cap at the level it is today, or the October level, then the BoE may decide that they can act with a bit more freedom.

And after the Credit Crunch of 13 years ago, it's likely that the banks will not be offering any mortgage that doesn't give them a good margin over the Base Rate. And just to throw a couple more things into the mix, Sterling might increase in value against the US $, and €, so taking a little bit of pressure out of the inflationary spiral.

I'd say if you can find a good two or three year fixed mortgage - which you can comfortably afford - then it'll offer you peace of mind through the economic storm which is coming, and see you through to the point when interest rates might start to decline a bit.
 
We've just 5 year fixed this month. We did it early and had to pay a 1700 quid early penalty but we save that by taking the deal now. We just want the peace of mind of no bill shock.
 
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