Shabab’s Finance Column: Interest Rates – Whats your thoughts?
Interest Rates – Whats your thoughts?
The most common question I get asked by customers is what do I think will happen to interest rates. This is especially the case when I am looking at mortgage planning needs of clients. Perhaps this is because no one really knows what will happen in the next few years to the base rate!!!
Most of my clients over the age of 40 plus who have experienced more than one recession in their life time are surprised why rates are so low. They cannot understand why rates have not rocketed to double digits as was the case in the previous recession. Well it’s simple, if rates were say 13 per cent plus who can actually afford a mortgage, and more to the point who would want one.
The highest rates have been was around 2007 when rates at the peak got to 5.75 per cent. I very much doubt if rates will get so high again for a long time, and certainly not 13 per cent plus as most of us would not be able to afford a mortgage and that means bankruptcy!
So will the rate remain the same forever? The answer in my opinion is no. This is because rates are so low that the only way they can go in all likelihood is up. However by how much, well that is the million dollar question, and I think homeowners are getting more and more nervous than ever at the minute.
People do not want to take a gamble therefore most of my clients are taking five year fixed deals because they feel a two year deal does not protect them for a long period of time and they feel paying 3 per cent plus for certainty is better than 2 per cent plus for a 2 year fix and worrying about the future.
Whatever happens to rates one thing is for sure most of us hate the uncertainty. We would rather know where we stand, but the economy is so unpredictable in the UK that it really is very hard to make a judgement call.
I myself would not want a fixed rate at the minute of less than 5 years. This is because the banks have increased their standard variable rates to around 4.5 per cent to 5 per cent and higher in some cases; therefore if you take a two yr fix at 2.5 per cent, then your mortgage payments will increase unless your re-mortgage in two years and get a similar rate.
Whatever your views, please let us know as I would love to hear from you.
Please note: I am not providing advice at all within this article. The information provided is based on my opinion, as well as the attitude of my current clients.