Before selecting a mortgage product it is worthwhile looking at likely interest rate trends: At the May MPC meeting base rate was held at 0.10%. The UK economy is set to grow at the fastest rate in more than 70 years with extra government cash for workers and businesses helping to limit job losses. The Bank expects the recovery to gather pace as the reopening of high streets paves the way for a mini-spending boom. Unemployment is now expected to peak at 5.5% later this year which is far below the 7.75% it predicted in February. Despite potential inflationary pressure, base rate is not likely to rise for at least three years although negative rates still remain a possibility if growth falters. It is worth remembering it took over ten years for base rate to rise following the credit crunch.
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 any further cuts 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.