Before selecting a mortgage product it is worthwhile looking at likely interest rate trends: At their June meeting the Bank of England voted 8-1 to pump an extra £100bn into the UK economy to help fight the ‘unprecedented’ coronavirus – induced downturn. Rates were also held at a record low of 0.10%. The economy shrank by 20.4% in April and inflation fell to 0.5% in May. Policymakers now hope the relaxing of lockdown will lead to a sharp upturn in growth. The market is projecting that base rate will remain at this emergency low level, or lower, for the foreseeable future.
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.