Q. I know we hear about doom and gloom with the credit crunch and stock market falls, but I consider myself very lucky. I took out a large mortgage some 10 years ago, and to begin with found it a bit of a struggle, what with school fees and so on.
Now though, the children are adults with jobs, and not only is my mortgage debt a lot lower, but the interest rate I am paying is just 1% above the base rate of 0.5%. This means that my repayments are less than half what they were in 2000!
I am therefore overpaying as much as possible, and am gratified to see the effect this has on the loan that is left. Originally the term of the loan was 25 years, but I aim to have it paid off in the next 5 years if rates remain around this level. Superb!
But if rates climb, it will really put a spanner in the works. What are your feelings on a rate increase?
A. That’s quite a question!
The answer of course is we have no idea, other than listen to what we read from the various commentators, and perhaps our own ‘gut feel’.
The factors that suggest a rise this year are that inflation has risen to its highest for years at 3.7%. As the Bank of England Monetary Policy Committee’s job is to look ahead 2 years with the aim to keep inflation under 2%, this is worrying. Also, the pound is weak, leading to more expensive imports, and the effects of the vast amount of money pumped into the economy (quantative easing)are perhaps yet to be felt.
On the other hand, the economy is still very weak, and any rise in rates would make this worse if people don’t have as much money to spend. Bank of England Governor Mervyn King reiterated his view recently that rates will remain low in the short term, meaning the next 1 to 2 years.
So, if we were to guess, and it’s only a guess, we would suggest that rates remain at current levels or slightly higher into 2011. It may well be that rates climb higher then – but then again they may not.
So it’s likely that you can ‘make hay’ for the next couple of years at least – with a bit of luck!
