Before selecting a mortgage product it is worthwhile looking at likely interest rate trends: At their November meeting the Bank of England agreed to pump an extra £150bn into the economy as it warned the resurgence of Covid-19 will lead to a slower, bumpier recovery. Policy makers also kept interest rates on hold at a record low of 0.10%. Tighter lockdown rules, including new restrictions in England, are expected to push the UK into another downturn. The Bank expects the economy to shrink 2% in the final three months of this year before bouncing back at the start of 2021, assuming current restrictions loosen. Base rate is not likely to rise for at least three years although negative interest rates remain a possibility if growth falters.
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.