Before selecting a mortgage product it is worthwhile looking at likely interest rate trends: At their September meeting the Bank of England has raised interest rates by 0.50% from 1.75% to 2.25%. The MPC voted 5-4 and said it would continue to ‘respond forcefully, as necessary’ to inflation, despite the economy entering a shallow recession. Headline inflation is now expected to peak just under 11% in October, well below previous estimates due to the government’s cap on energy tariffs. Economists and financial markets are divided as to where rates will peak and all eyes are now on November, when the Bank will produce new forecasts.
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.