Before selecting a mortgage product it is worthwhile looking at likely interest rate trends: At their May meeting the Bank of England have held base rate at 0.10%, which is the lowest ever in the bank’s 325 year history. The impact of coronavirus has meant the economy is likely to shrink by 14 % this year based on the lockdown being relaxed in June. Inflation is predicted to fall to zero by the start of next year amid the sharp drop in energy prices. Worryingly, unemployment is on course to rise above 9%. The market is projecting that base rate will remain at this emergency low level for the foreseeable future, at least until the economy starts 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.