Interest Rate Update to 21 October 2009

Interest rate: 05%

UK Interest Rates Forecast: Staying low until mid-2010, at least

Mortgage Lenders Continue To Cut Rates

This week has seen more major mortgage lenders cutting interest rates, continuing a trend we saw last week and emphasising the growing competitiveness in the UK’s mortgage market – a welcome return after so many months of prohibitive interest rates and poor deals.

To Fix or To Track?

Right now, the big choice facing anyone who is remortgaging or looking for a new mortgage is whether to choose a tracker or a fixed rate.

With rates currently very low, trackers look good value and fixed rates look dear. However, throw in a few Bank Rate increases and those choosing fixed rates could be the ones who are smiling.

The problem is that predicting the path of interest rates over the next couple of years is so difficult. To help its readers understand the issues involved, The Guardian recently asked a number of leading economists what they thought would happen to interest rates over the next year.

Of the six economists surveyed, the majority leaned towards trackers, at least for the next year or two. Only one explicitly recommended a fixed rate; Philip Shaw of Investec Securities believes that the Bank Rate will hit 2.5% next year, giving two-year fixed rate mortgages “the edge” on trackers.

Most of the other economists surveyed did not expect the Bank Rate to rise this fast, meaning that competitive tracker products offer better value in the short term.