I've fixed my mortgage at 5.9% for five years (high multiple, small deposit FTB, hence the high-ish rate). My view is that the risks are asymetrically skewed to the upside. If Keynes was right, and inflation is indeed "always & everywhere a monetary phenomenon", then the historically unprecedented volume of M2 pumped into the US economy over the last six years should form a floor under inflation, and therefore interest rates.
The US economy could slow on the back of woes in their housing market (which was responsible for an astounding 25% of new jobs created during this cycle) and Asian price pressure on their manufacturing sector (though it should have learnt to economise by now - the China phenomenon is well established). The correlation between Fed rate cuts and rising unemployment is extremely strong. Whilst engineering price stability is their stated purpose, post-depression policy has always had a very strong emphasis on maintaining full employment. In fact, it is arguably the reason the Fed exists in the first place.
In UK terms, I see extremely lax credit conditions persisting. The UK economy also seems to be on a fairly solid footing, so unemployment, whilst trickling upwards, is still low in historical terms. Given that demand for new housing still massively outstrips supply (don't forget that half a million EU "accessionites" need housing too!), unemployment is low/stable and monetary conditions are lax, it's difficult to see how the BoE can justify a rate cut. The lastest inflation figures show the RPI approaching the upper limits of their target band, which has provided the hawks with more ammunition.
I'm happy to fix at 5.9% because if inflation runs away (as I expect it might do, under the sheer weight of global money supply), rates will rise substantially. Don't forget that rates need to rise more in order to have the same effect at a higher rate - i.e. at 7% rates will be rising in 50bp increments, rather than gentle 25's. At 10% it starts to get ugly!
However, this could dampen enthusiasm for a FTB property like mine, as it will be too expensive to finance on high multiples over long periods. Potentially a zero-sum game in this scenario, but at least my debts will be inflated away a bit quicker.
If rates do fall, then it is unlikely they will fall by much. The low in the UK base rate was 3.5%, and that was the lowest in fifty years. If rates do fall that low again, then the BoE will turn the monetary taps on and we'll have another refinancing boom that should greatly benefit the housing market. 200bps on the downside vs. 700bps (potentially!) on the upside means that I'm capping my exposure. I think the tail risk is too great to bear and I'm paying the insurance premium for a long-term fixed rate.
DT
). So, I'm looking to re-negotiate with the RBS or switch to a new lender. The RBS have offered me a fixed rate or another dicounted variable rate (but are trying to get me to part with a £499 arrangement fee that they reckon is non-negotiable 
, but we'll see, sounds like a quick way to lose existing customers to me!). As interest rates are creeping up I dunno whether to go for fixed or variable.
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