Hong Kong Phooey

Looking for some views on mortgages......
Currently with Nationwide on 2.99% loyalty discount , but expires end of this month .

What would you opt for....
2yr fixed 3.79%
3yr fixed 4.09%
2yr tracker 3.74% or
3yr tracker 3.84% ?????????????

Any views appreciated.

3times

HKP,
The rate and type of product you choose depends a lot on your circumstances.

Basically though if you are concerned about interest rate movement go for a fixed. If you have a reasonable amount of savings and/or are able to make overpayments you may want to consider a mortgage thats with an ofset facility. (some lenders let you overpay on fixed rates).

If you are unsure you may be best to see a local IFA.

Tony

Hong Kong Phooey

Cheers Tony,
I've been to see my IFA, and I accept what you've said, but I'm wondering what others views are on base rate movements over the next couple of years.......I was caught out on a 5 year fixed rate a while back (after taking advice) and paid the penalty to get out of it.....just don't fancy picking the wrong product again.......

MattW

Those are good rates, are there any redemption penalties beyond the life of the mortgage discount????.

If you want a personal opinion, I'm on a tracker linked to my current account. I pay 4.69% at the mo, but interest is offset with my savings and current account balance. The up side is by saving interest on my mortgage and not receiving interest on my savings, my SA return is less complicated as my only income is PAYE.

If interest rates move lower, the rate cut passed on is going to get squeezed further as the banks need to look after their savers too. After all this is where much of their capital source is. I don't think a fixed rate of 4.09 is going to be bad value over time, but if you think that interest rates will be stable in the short medium term, the trackers look good value.

IMO
It is very difficult to predict interest rates over more than 2 years. Look at the current situ, house prices booming (in the south), shares on their knees, war looming etc etc.

All this before you look at the political situation where pressure on the Govt to deliver in the public sector is increasing. The problem is that that Gordon Brown is a spender, and this would normally have inflationary pressure. This would be curtailed by an increase in the interest rate, but now the BofE has control they will look more at the wider picture, including exchange rates, industrial output, exports, house prices, wage increases, consumer confidence etc.

Gordon Brown is not however borrowing massively(compared to previous governments) to fund spending. Years of low taxation has given him the scope to hit our taxes before the need to borrow money. This is having the effect of an artificial rise in interest rates.

There are a number of factors that will affect the economy which maybe difficult to predict namely:

War
Pensions Crisis
Shares

Over the next two years, I believe interest rates will remain fairly low, less than 5%. Beyond that it depends on the factors above plus some, and the way the govt handles them.


edited to say - I'm not a financial advisor, and any opinion expressed is my own etc etc.




[Edited by MattW - 3/13/2003 1:06:27 PM]

ChrisB

http://www.stroudandswindon.co.uk/

2 year discount fixed at 3.59%.

I'm off to see my IFA tonight about it

Hong Kong Phooey

MattW,
Early redemption penalty only during the term of the product, and they also allow overpayments up to £500 per month (if only!).

What effect will a war have on rates?
If the stock markets start to pick up over the next couple of years, how would that effect rates?

MattW

Rates are affected indirectly by consumer confidence. A war\stock market low affect confidence in a negative way. Wars have to be paid for, this increases govt spending, and maybe borrowing, or maybe your taxes.

There are lots of other factors though, just because shares are low in price this does not mean interest rates will be high and visa versa.

Chris B - 3.59% discount fixed for 2 years. That rate is a 2 year discount from their standard variable rate. The fixed rate is 3.7 which looks better value.

ChrisB

Isn't two year discount at 3.59% better than two year fixed at 3.70%?

MattW

Yes - as long as interest rates dont go up in the next two years. They only have to move up .12% for you to be losing out. Now bearing in mind they recently dropped by 0.25% which was unexpected by most analysts, the chances are they will go back up by that amount within 2 years. IMO of course.

ChrisB

I had it my head that the discount one is fixed - I shalld double check tonight.

Cheers Matt.

fast bloke

Guessing interest rate movement is the key to deciding the best product. It is generally fairly easy to get a good two year picture, but at the minute there are quite a few strange circumstances. As a rule of thumb...
Increasing house prices will indicate a rise in the near future.
Low stock markets will indicate a cut in the near future.
High consumer spending/borrowing will indicate a rise
A war would usually indicate a cut to encourage spending and increase tax revenues.

In the past, these have generally been heading in the same direction - Imminenet war will cause stock market gloom. Stock market gloom make people worried about short term future so they start to save a bit. Consumer spending/borrowing slows and people don't go after bigger mortgages. All ties up to give an almost certain cut. This time the housing market and consumer confidence seem to be ignoring the stock market, so there is no clear direction.

My personal opinion is that they will come down another 0.25 or 0.5 in a couple of months and then rise back to 4%ish over two years. The other key influence at this time is the decision regarding joining the Euro.