Mortgage Interest rate Predictions.

UK interest rates are currently 5.75%. A few months ago, may forecast that interest rates would soon rise to 6% and possibly higher. However, recent events suggest that interest rates may have peaked already, and in the coming months interest rates could fall due to lower inflationary pressure.

Reasons why interest rates are predicted to be lower.

• House Prices Overvalued. An IMF report suggested that house prices in the UK are 40% overvalued. This does not necessarily mean a crash in imminent, but, it does mean there is the prospect for a slowdown and possible fall in house prices in 2008. A fall in house prices would reduce consumer confidence and consumer spending. This would reduce inflationary pressure and enable interest rates to be cut, without inflation going above target. - See why house prices are set to fall.
• Potential of future Credit Crisis. In this blog post, I posted how the Bank of England feels there is still the prospect for a serious financial crisis. This uncertainty could cause a slowdown in the economy and require lower interest rates to deal with it.
• Slowdown in global growth. With recession looming in the US, this could result in slower global growth and therefore, inflation will be lower. However, it is worth noting that the US economy is less significant for affecting global growth than it used to be.

Fixed Rate Mortgage interest rate predictions

At the moment, I feel fixed rate mortgage deals are a little expensive. They are based on interest rates remaining around 5.75%. If interest rates do fall in 2008, there will start to be much better fixed rate deals.

Sub Prime Mortgage rate predictions

Unfortunately, although base rates have stayed the same, the actual cost of sub prime mortgages has increased. This is because there is an increased risk associated with sub-prime mortgages.