Search: Interest rates: What the experts say
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It's the big question for homeowners and it's impact could mean you pay thousands more, or less, for your mortgage.
Whether you’re a saver or a borrower, the future direction of interest rates is perhaps THE vital factor in whether you’re going to be richer or poorer in the years ahead.
The problem, of course, is working out which way rates are going to go. Get it right and, if you’re a homeowner, cash-rich or up to your eyeballs in debt, you’ll be a lot better off.
In all honesty, there’s no way any one person can be sure the way interest rates are going to go. Some people question whether it’s worth listening to the experts at all. The most skeptical point out that an “ex” is a has-been while a “spurt” is a drip under pressure.
And maybe they’re right.
What isn’t in doubt though, is that there are a huge number of talented individuals spending a lot of their time trying to work out what’s going to happen while the rest of us don’t have a clue.
So maybe the best approach is to pool the views of a few commentators, see what they have to say, and take an educated rather than a wild guess, when deciding what we should do. So here’s the view of just a few of our experts, some of whom really ought to know what will happen and others who are just using the knowledge of the businesses they’re in, to give us an idea:
Office for National Statistics: We’re Still in Recession
The fact that the Office for National Statistics told us last week we’re still in the longest recession we’ve ever known seems to have wrong-footed most of our economic experts. So we’d do well to remember that whatever happens, a sharp rise in interest seems so unlikely that it can be discounted.
CEBR
The Centre for Economics and Business Research, an independent consultancy, reckons that on the back of the news we’re still in recession, we can expect the Bank of England to keep rates at 0.5% until at least 2011 and that it’ll remain below 2% until 2014. If you believe them, then choosing a five-year fixed rate savings bond paying 5% seems like a good idea, locking you into an excellent rate while the base rate is on the floor and allowing you to move your money when they’re on the rise.
Bank of England Monetary Policy Committee
Unfortunately for the CEBR, the Bank of England’s monetary policy committee, which actually sets the base rate, has voted against an extension of pumping more money into the economy to boost growth. If they stick with this decision, that suggests they’re thinking an economic recovery will come sooner than the CEBR thinks – and that correspondingly, we’ll see rates rise sooner than expected.
Nicholas Leeming of propertyfinder.com says:
"Money market interest rates have fallen a long way and are now closely in line with the base rate. That means lenders can borrow at close to 0.5 per cent but will only lend to families struggling to buy a home or remortgage at rates around 10 times that level. The banks then pocket the difference.”
“The whole point of low base rates is to encourage lending and borrowing but instead banks, awash with taxpayers’ cash, are using them as an excuse to feather their own nests.”
“The economic recovery is likely to be slow and patchy, especially given the mountain of government debt that must be repaid.”
Investec Securities
David Page, an economist at Investec Securities, expects rates will go up far faster than other experts because of rising inflation. He predicts a 0.25 point rise at the start of 2010 with rates hitting 2.5% by the end of the year.
Too Many Cooks Spoiling the Broth
So what we have so far is a leading authority telling us rates will stay low for a long time; the people who set rates telling us that might not be the case; a leading investment broker telling us they’ll go up quicker than expected; and a property expert insisting they won’t.
The fact that everyone has a differing view hasn’t been lost on those wanting an answer. So perhaps a more useful guide has been two recent surveys asking a huge range of experts their views. Two of these stand out: a Reuters poll and another by the Sunday Times.
The Reuters poll suggests the base rate will stay at 0.5% until May or june of next year, rising to a peak of 1.25% by the year end. The Sunday Times predicts a similar scenario but goes further in predicting the rate will be 2% by the end of 2011.
What to Do?
Using these figures as a guide makes good sense if you, like everyone else, haven’t a clue whether to go for a fixed or variable rate mortgage or savings account.
But as a broad guide – and depending on your personal circumstances, if you can fix your mortgage at an attractive rate for a long time, then that looks like a good option.
Likewise, if you’re a saver considering bonds, it might be best not to lock your money up for too long and risk missing out on better rates emerging in as little as six months.
