Interest Rates
Thursday 9th November, 2006 09:38 Comments: 7
The Bank of England is almost certain to raise interest rates from 4.75% to 5% today. The move will mean higher payments for millions of homeowners. Industry leaders have called for rates to be kept on hold, arguing higher inflation has not led to better wages. But it is thought the Bank's Monetary Policy Committee is jittery about inflation as it has lingered above its 2% target for five months. This is despite September's rate dropping from 2.5% to 2.4% on the back of cheaper petrol prices.
The rise is likely to cost homeowners with an average £80,000 mortgage just under £13 more a month. Of course, the "average mortgage" doesn't really reflect the huge mortgages that most people have taken out in the last 5 or so years. Not only that, but Philip Shaw, of Investec Securities, said there are concerns over whether the widely predicted rate rise will be the last.
"The real debate is where rates head beyond November. The MPC will need a dose of soothing inflation news to calm its nerves if rates are going to climb no further. We believe this will probably happen. But we cannot deny that there is a risk rates will rise to 5.25% and possibly beyond if the MPC does not like what it sees on the inflation front."
The rise is likely to cost homeowners with an average £80,000 mortgage just under £13 more a month. Of course, the "average mortgage" doesn't really reflect the huge mortgages that most people have taken out in the last 5 or so years. Not only that, but Philip Shaw, of Investec Securities, said there are concerns over whether the widely predicted rate rise will be the last.
"The real debate is where rates head beyond November. The MPC will need a dose of soothing inflation news to calm its nerves if rates are going to climb no further. We believe this will probably happen. But we cannot deny that there is a risk rates will rise to 5.25% and possibly beyond if the MPC does not like what it sees on the inflation front."
Yamahito - Thursday 9th November, 2006 10:13 Thank god I got a fixed interest mortgage...
How long is it fixed for, if you don't mind me asking? Interest rates are pretty low, it seems to make sense to get a fixed one for as long as possible to save some money and do the place up (e.g. decorating), but most places only seem to offer about 3-4 years. The problem I see is it's a false sense of security to some people, especially new homeowners, as once the fixed rate period is over they're onto the variable (and probably much higher) interest rate that they possibly can't afford anymore. If 0.25% is £13 a month more, I'd dread to calculate what a 2% increase is for someone with a mortgage of £160k. Over £200 more each month? I suppose the banks shouldn't be offering mortgages to people that are stretching themselves to meet the fixed rate or even the variable rate, but some probably do, and job security isn't what it used to be nowadays.
Ditto, thank god for fixed. I am fixed for two years, but in two years time, I will simply negotiate a new contract with my lender and go on another fixed for two years. You can get a five year fixed and I think Barclays are even offering a 10 year fixed, but that is a serious gamble that rates will not come down before then.
But the fixed rate could be at a higher rate when you renegotiate, although it will presumably be cheaper than going onto the current mortgage's variable rate.
This is a hideous graph, but it shows the UK base rate since 1985, and gives you an idea of how low it currently is and how high it could quite easily go in the next 20 years: http://www.houseweb.co.uk/house/market/irgraph.gif
This is a hideous graph, but it shows the UK base rate since 1985, and gives you an idea of how low it currently is and how high it could quite easily go in the next 20 years: http://www.houseweb.co.uk/house/market/irgraph.gif
Yep interest rates are nice and low. Should they ever become high, start saving a lot more money!
The thing about the length of the interest free period, Rob, is that it normally coincides with or exceeds the length of time you're obliged to stay with the same lender. Other than a calculated risk on how much money you'd save, the biggest reason for going for fixed is budgeting your monthly payment amounts. After three years, hopefully your finances will be a bit more flexible; at the very least you'll have a lot more choice, as lenders are less likely to refuse to buy debt than extend it in the first place.
Oh, and mine's for three years ;)
Oh, and mine's for three years ;)
My plan is that should my salary take a jump (which it will next month and then early next year, whoohoo!) I can choose to overpay my mortgage. This overpayment pays off the capital directly, not the interest. So fixing how much you pay is sensible as the beginning of a mortgage involves paying substantially more interest than capital. In two years time, I can renogotiate the mortgage and depending upon how much capital I have payed off, I would be paying off relatively less interest. May change the mortgage term from 35 years to 25 years to pay even more off faster. It wasnt worth doing this upfront as you pay off so little capital in your average mortgage payment.