Before selecting a mortgage product it is worthwhile looking at likely interest rate trends: The Bank of England has cut interest rates again in an emergency move as it tries to support the UK economy in the face of the coronavirus pandemic. The second reduction in just over a week brings base rate down to 0.10%, which is the lowest ever in the bank’s 325 year history. The new governor, Andrew Bailey reiterated his lack of enthusiasm for zero or negative interest rates because of their impact on the banking system’s capacity to lend. The market is projecting that rates will remain at the emergency low levels for the foreseeable future as it could take years for the economy to recover.
It is difficult to be definitive when recommending which of today’s products offer best value. Both short and long term fixed arrangements are priced competitively as we appear to have reached the bottom of the current interest rate cycle. It is unlikely that lenders will pass on the recent cut in base rate as they struggle to maintain margin. Standout products are base rate trackers, preferably without redemption penalties, offering unparalleled current value and maximum future flexibility. As always, those with surplus capital should consider the tax advantages of an offset arrangement.