Boulger said: “The City is predicting at least one Base Rate rise by the end of this year with more to come next year, but we’d advise people not to hold their breath.
“The City’s track record on forecasting Base Rate rises has a success rate of well under 50% over the last 15 years, and so basing mortgage decisions on the interest rate futures market might not be the cleverest strategy. But of course fear of higher mortgage payments is a powerful emotion and borrowers should always be prepared for interest rate rises regardless of whether they materialise or not. We expect Base Rate to remain close to 3.5% until well into next year. ”
“As a result of the money markets currently pricing in substantial Base Rate rises, most fixed rate mortgages continue to look expensive compared to their tracker and discount counterparts. In fact Base Rate would need to rise to 5% before the current crop of discount trackers looked expensive compared with fixed rates for 3 years and longer.”
What should borrowers do now?
Boulger continues, “With the value margin so wide between trackers and fixed rates, we’d advise most borrowers to plump for a market-leading discount or tracker.
“Those who would prefer the payment certainty of a fixed rate over the longer term can initially tap into the savings on offer from a penalty-free discount tracker, with the option to switch without penalty when fixed rates look good value again. Some discount trackers offer a drop-lock option, enabling borrowers to switch to a fix with the same lender at anytime.”
