Before selecting a mortgage product it is worthwhile looking at likely interest rate trends: As expected at their August meeting the Bank of England has raised interest rates by 0.50% from 1.25% to 1.75%. The biggest increase in twenty seven years is intended to curb rapidly rising inflation, which is now expected to peak at 13.3% in October. Markets are pricing in further hikes and expect base rate to peak at just under 3% sometime next year, before starting to fall to stimulate the economy.
It is difficult to be definitive when recommending which of today’s products offer best value. Historically speaking, both short and long term fixed arrangements are priced competitively although we are now well passed the bottom of the current interest rate cycle. Product pricing is increasing rapidly and at short notice as the wholesale money markets have risen steeply over the past few months. Base rate trackers, preferably without redemption penalties offer fair current value and maximum future flexibility. As always, those with surplus capital should consider the tax advantages of an offset arrangement.