Mortgage rates part 2

[wanda]

Its that time again fixed rate or variable. How much effect does inflation have on mortgage rates? the variable rates are still far below fixed which makes me feel tempted in staying.

Do you think its too risky to stay variable in this climate?

[davelowe]

Its that time again fixed rate or variable. How much effect does inflation have on mortgage rates? the variable rates are still far below fixed which makes me feel tempted in staying.

Do you think its too risky to stay variable in this climate?

Good question. I would think the major factor is the length of the term of the mortgage before switching induces a large penalty charge (you might want to get a spreadsheet set up for this).

Inflation is a complex thing, but it isn't the dominant factor with mortgages - the rising of prices means you have to pay more for goods as a function of your pay leaving you with less money (assuming a set wage) to pay the mortgage. The economic problem is managing inflation levels without large increases in wages - this situation can is a self fulfilling prophecy that can lead to artificially large debts and subsequent contraction. At the present time with a government policy and IMF approval - provided you have a stable income (the general tone is below or at inflation annual pay rises, not necessarily relevant if you are self employed), inflation will probably sit at the current level and then drop. Interest rates (as determined by the Bank of England MPC) is important. For the same reasons as for inflation in the current climate, interest rates are likely to remain low for 2 - 3 years. Most mortgage providers will give you a variable rate based on the BOE base rate plus a percentage. If you can find a deal for 2 - 3 years variable that expires without a penalty, I'd go for it. The fixed rates are probably higher because the mortgage companies are banking on interest rates averaging what they quote over a long period - so they take a hit at certain times, and profit at others.

But what do I know?!

[wanda]

Its that time again fixed rate or variable. How much effect does inflation have on mortgage rates? the variable rates are still far below fixed which makes me feel tempted in staying.

Do you think its too risky to stay variable in this climate?

Good question. I would think the major factor is the length of the term of the mortgage before switching induces a large penalty charge (you might want to get a spreadsheet set up for this).

Inflation is a complex thing, but it isn't the dominant factor with mortgages - the rising of prices means you have to pay more for goods as a function of your pay leaving you with less money (assuming a set wage) to pay the mortgage. The economic problem is managing inflation levels without large increases in wages - this situation can is a self fulfilling prophecy that can lead to artificially large debts and subsequent contraction. At the present time with a government policy and IMF approval - provided you have a stable income (the general tone is below or at inflation annual pay rises, not necessarily relevant if you are self employed), inflation will probably sit at the current level and then drop. Interest rates (as determined by the Bank of England MPC) is important. For the same reasons as for inflation in the current climate, interest rates are likely to remain low for 2 - 3 years. Most mortgage providers will give you a variable rate based on the BOE base rate plus a percentage. If you can find a deal for 2 - 3 years variable that expires without a penalty, I'd go for it. The fixed rates are probably higher because the mortgage companies are banking on interest rates averaging what they quote over a long period - so they take a hit at certain times, and profit at others.

But what do I know?!

Are you the chief advisor to the treasury by any chance?

You have my vote

[davelowe]

Cheers Wanda! I erm, am interested in macro economics... I do scribble a bit for the press but I like to keep it quiet! Job in the government - not likely.. Just go on charcol.com!