Before selecting a mortgage product it is worthwhile looking at likely interest rate trends: At their September meeting the Bank of England’s Monetary Policy Committee (MPC) voted unanimously to maintain base rate at 0.10% and voted by a majority of 7 – 2 to continue with its existing programme of UK government bond purchases. CPI inflation was projected to rise temporarily in the near term, to 4%, owing largely to developments in energy and goods prices. However, inflation is expected to fall back to close to the 2% target in the medium term. Since the August MPC meeting, the pace of recovery of global activity has showed signs of slowing and bank staff have now revised down their expectations for UK growth in the third quarter. Base rate is not likely to rise significantly over the next couple of years and negative rates still remain a possibility if growth falters further, it is worth remembering it took over ten years for rates 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.