The future Prime Minister, Gordon Brown, would like us all to fix our rates as most do in the euro zone and US. This, he believes, would reduce the spectre of a boom-bust housing market. Interestingly, the trend abroad has moved towards the short-term two-year style deals which have proved so popular over here until recently.
get the daily news delivered to your inbox
My colleague argues that his clients want to know their monthly commitments and not be at the mercy of Bank of England. He asks them the most they could afford, and works back to what rates would have to increase to. As a rise in May is likely, this seems sensible. In the longer term, if you believe history repeats itself, then rates could head north, as they have in the past to 10 per cent. But how low could they fall ? Even a 2 per cent fall is unlikely – you have to pay savers something.
My counter to this is that fixed rates are and have historically been more expensive. This is because you have to buy the money in from the markets, as opposed to paying depositors 3 per cent and charging 5 per cent as with variable rates. Recent data suggests a booming economy, but rising rates will further strengthen the pound and at nearly $2 to the pound sterling, this is not good for our exporters, deepening our trade deficit.
Catch up on the industry buzz
Knowing your monthly payments is important to many people, but if rates rise, this can simply delay the pain until the time the fixed rate ends.
Personally, I have a mixture on my residential and buy-to-lets. I have a very nice six-years at 4.99 per cent fixed and a 5.25 per cent tracker. But, these replaced a 7.5 per cent fixed I took out five years ago.
Paul Ormerod
Financial planning associate
Caliber Financial Associates Limited
