Our top three most Frequently Asked Questions in June 2023
Q - Will interest rates rise or fall over the next few years?
A - It's impossible to say with any degree of certainty or confidence. Interest rates have been rising again since December 2021, when the Bank of England Base Rate moved from a historic low of 0.10% to the 5.00% we have today. The Bank of England takes into account many economic factors which influence the setting of the base rate, and Inflation is one of the major economic factors used. When Lenders set new Fixed Rates for Borrowers, the base rate is just one of many factors they take into consideration. Economists are predicting that the Base Rate may peak at 6% by the end of 2023 before remaining at that level for a while and then potentially beginning to lower again. But there is no guarantee this will be the case. Ask the Bank of England or an Economist if they could foresee a 500% increase in the Base Rate over a period of 18 months, and they would have probably said that there is no way that could happen, but it has. One thing that is certain is that in a Capitalist world, Base Rate will always fluctuate. The Base rate has been as high as 17% in November 1979 and as low as 0.10% as recently as March 2020.
Q - When will we go back to Fixed Rates being around 2% or less?
When fixed rates were at their lowest, the base rate was also at its historic low of just 0.1%. Economists suggest that the period of time when Homeowners enjoyed such low fixed rates was off the back of the Financial Market crash in 2008. For almost 13 years, from late 2008 until December 2021, the base rate was between 1.5% and 0.10%. This means that there is a whole generation of Mortgage holders who have only ever known fixed rates at the 1% to 2% mark. You can never say never, but market commentators suggest that it would take another catastrophic global financial event to ever go back to these levels again. In fact, the average base rate over the last 52 years has been 7.11%, so one could argue that this figure is where you would typically expect to see the base rate.
Q - My current Mortgage deal is up soon. Should I take out a new fixed rate for 2 or 5 years?
There is no definitive answer to this question, as it really depends on your own personal circumstances and priorities. Generally speaking, 5-year fixed rates are slightly lower than 2 years fixed rates at the moment which means that if your priority is to have the lowest monthly payment above all else then a 5 year rate might be the way to go. Fixing the rate for 5 years also means that if interest rates continue to rise you might be protected from these increases and have peace of mind knowing that no matter what's happening in the economy, your payments won't change. And for some clients, this stability, no matter what, is important to them. Of course if you commit to a 5 year fixed rate and new fixed rates are lower than your rate during the 5 years then you may end up paying more. You can get out of your 5 year deal but may face a hefty early repayment penalty to do so. Fixing for 2 years means that your payments are likely to be slightly higher now compared to an equivalent 5 year deal. But fixing for 2 years does give you a degree of flexibility because in 2 years time, your deal will end and if new fixed rates at the time are lower than the one you have been on then you will naturally benefit from that. That said, there is no guarantee that will be the case and you need to consider what if new fixed rates in 2 years are higher than what you were on, or worse still, higher than the 5 year deal you could have taken. If being able to potentially take advantage of lower rates in 2 years time is the most important factor for you then taking a 2 year fixed rate now might the most appropriate way to go.
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