Before selecting a mortgage product it is worthwhile looking at likely interest rate trends. The Bank of England’s Monetary Policy Committee voted to keep rates on hold at 0.75% at their August meeting, against a backdrop of weaker global growth. The Bank also cut its forecast for UK growth over the next two years and warned that a ‘No Deal’ Brexit would hit the economy and trigger a further drop in the value of the pound. It also cited ongoing trade tensions between the US and China, as the Central Bank recently cut interest rates in the US for the first time since 2008. The next movement in UK interest rates could still be in either direction depending on the Brexit outcome.
If rates do start to rise the Bank has reiterated its earlier comments that it would be at “a gradual pace and to a limited extent”. Assuming an orderly Brexit only one quarter point increase is expected by 2021. It is difficult to be definitive when recommending which of today’s products offer best value. Short and long term arrangements are both priced competitively as we hover close to the bottom of the cycle. It is likely that if rates begin to rise the margin between payable mortgage rate and base rate will narrow. Those with surplus capital should always consider the tax advantages of an offset arrangement.