Fixed or Variable in the current climate

Bluefoam

My current fixed rate (2.55%) is ending soon... & I've been offered a new 4 year fixed of 3.65%. Variable at the moment is 3.5%.

What are people doing? Going to fixed? Going Variable? Are we expecting interest rates to drop in the medium term? The fixed rate would cost me about 5k over 4 years... & I'm thinking that rates will begin to drop in the next two years... so I might be better off on the variable rate for a while.

Jim2007

Nobody can tell you with any certainty what will happen to interest rates, so your guess is as good as anyone on here. Fixed interest products are attractive for persons who need the certainty of their outgoing for a future period for financial planning etc... otherwise it is just a gamble.

HerrKuehn

This is a really tough question. Fixed rates have already moved quite a bit. Variable rates are still a bit behind ECB rates, so you would imagine they might have to move, particularly if banks have to starting paying a bit more to savers due to competition. ECB rates will be held high until inflation is tackled. Futures markets are currently predicting one more rate rise of 0.25%, then a drop of 0.75% over the course of 2024, so ECB rate is predicted to be 0.5% lower than now.

It is difficult to guess now as if inflation was to kick off again, rates would have to remain high. In any case it is never easy to predict what is going to happen, but there are times when it is much easier. For example, I was on a variable rate in early 2022, I think it was around 2.35%. I could see there was high inflation and that would likely result in higher interest rates. I was able to fix for 2.25% I think it was, a little bit lower than the variable (but I was on variable to allow me to pay it off, no point in paying down debt when inflation is high though). At 2.25% it was unlikely fixed rates would get much lower, with ECB rates at 0%, but they could go much higher, so it there was very little downside to fixing. Futures markets were very accurate in predicting the rate rises over the last year and a half. Bear in mind it is a prediction only, but it is informed opinion of interest rate experts risking money on their predictions.

Jim2007

Bear in mind it is a prediction only, but it is informed opinion of interest rate experts risking money on their predictions.

In 35 years I never met an expert dealing on their own account and now a days they are not even allowed to deal on the financial institutions account.....

HerrKuehn

https://www.boards.ie/discussion/comment/120922836#Comment_120922836

Not this rubbish again. What exactly were you doing in the financial firm you were working for? I never really got an answer to that before when I asked, but I inferred from other answers that you were involved with selling services to trading firms or something along those lines. There are lots of consistently profitable trading strategies, I have been developing HFT strategies for the last 15 years and we have had very few down days. Would you even have any idea what strategies like that do? Companies like Citadel have grown so fast by being consistently right, not lucky. Also, traders in proprietary trading firms are generally trading their own accounts. Prop trading firms don't have customers, they trade the firms capital (margin) as well as the individual traders enterprise account.

It is of course impossible to make correct predictions all the time, but quite possible to be correct more than incorrect, on average, so that it is profitable. In the case of the OP, unfortunately for them most of the change has already taken place. There are times when it is possible to put on an asymmetric bet, such as my example where fixed rates couldn't really go much lower, but the likelihood of rises was fairly high.

Jim2007

https://www.boards.ie/discussion/comment/120922905#Comment_120922905

So you are not trading on your own account then….

And as I already stated we never trade on our own account, it’s just not how we do business.

HerrKuehn

https://www.boards.ie/discussion/comment/120923426#Comment_120923426

Are you actually involved in the front office, revenue generating, part of the business? At least answer that my evasive friend, because I think you are probably tangentially associated with trading, but not close enough to actually understand anything about it, maybe some sort investment firm (which is completely different).

Where I work, we (trading team) trade the firms capital. We do it algorithmically, in a large team and are therefore not trading our (team members) money, but also not trading customers money. There are others in the company, on their own, who trade their own capital. It is very common to do so. There are lots of companies that have this model. I would wonder if you are mixing up trading, speculation and investment, which are completely different things.

drogon.

I personally would fix for 3 or 4 years if possible, by fixing at least you know what your repayments will be and makes budgeting easy. I also think the days of 0% interest for the next decade is out of the question, once inflation is "fixed" I think ECB IR will still hoover around ~1.5%, considering inflation target is 2%. All this however is opinion, as no one knows what will actually happen.

daheff

Take a lot of stock market analysts. They would trade on their own account some of the stocks they cover. I think you need to get out more often Jim.🤣

https://www.boards.ie/discussion/comment/120922836#Comment_120922836

coolbeans

Fix it ta ****. Can't put a price on peace of mind.

Jim2007

Closing this thread as it has ran it course and now going off topic.