Before selecting a mortgage product it is worthwhile looking at likely interest rate trends: At the August MPC meeting the Monetary Policy Makers voted 8-0 to hold base rate at 0.10% and 7-1 to keep the government bond-buying programme at £875billion. The Bank said inflation would peak at above 3% as Britain’s lock-down economy reopens, but the rise further beyond its 2% target would only be ‘temporary’. The UK economy is forecast to grow by 7.25% this year and 6% in 2022. Base rate is not likely to rise significantly, if at all, for at least two years although negative rates 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.