11 years ago, Bank of England base rates were low at 0.5% pa, a legacy of getting UK ticking again after the Credit Crunch Crisis of 2008/09. Therefore, mortgage interest rates were low at around the 3-3.5% pa mark on average. We warned at the time that rates were likely to increase and so, for stability of known mortgage payments, you may wish to consider fixing your mortgage into a lower rate for 5 years or 10 years. They did in fact fall again but then started to tick upwards in 2017. We had a decade of much lower rates; in fact, a whole generation has grown up with lower interest rates. Nothing like when mortgage rates could be as high as 16% pa back in 1989.
Covid-19 and lockdown then hit in March 2020. Bank of England interest rates then fell to a record 0.1%, with some other countries central banks going negative with rates i.e., you got charged to leave your money in the bank. Mortgage rates in the UK of course went even lower, then resulting in a stampede to buy property and lock into lower rates when lockdown was lifted.
At the time, with government borrowing at £500bn to pay for medicines, research, furlough pay, business grants and more, we forecast that the only way governments would be able to repay covid-19 debt would be to devalue debt by allowing inflation to grow. We forecast inflation to hit 5% per annum for a 10 year period meaning that compounded over that 10 period would mean a 63% devaluation of the debt, which will inflation then at 2.5% pa for 15 years (year 25 after borrowing), meaning the debt would now be devalued by over 90%, just when it is the government’s time to repay its bond and gilt debts. We then warned you to expect higher interest rates to bring inflation down and suggested you fixed your mortgage at those historically low rates for 5 or even 10 years.
Russia then invaded Ukraine and with the subsequent energy crisis, prices rocketed not just for power but also all goods and services (as we all need power) resulting in inflation topping at 14% (much worse than we had expected pre-conflict). Interest rates were dramatically increased by central banks in the West to curb inflation. Many have felt the pain of much higher mortgage rates and rent increases because the mortgage wasn’t fixed to the lower rates beforehand.
Inflation has fallen, interest rates are falling. Should we fix now or wait for rates to fall even further?
This is a tough one to call. On 2nd August 2024, the Bank of England reduced interest rates from 5.25% pa to 5.0% pa and, at the time of filming are expected to make further rate cuts over the coming year. This leaves us with a dilemma:
This is impossible for us to answer but we suggest that:
We suggest whether you remortgage to a new deal or even fix your mortgage rate now, will come down to affordability and impact on your budget today. We like fixed rates as they offer stability of monthly cost, and you should never look back and think I wish I had/hadn’t done that if rates do go down or up. It should be based upon your affordability of any new deal over the next few years.