Low base rate could make lifetime trackers better value than fixes
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Borrowers looking to take a gamble on Bank of England base rate remaining low for the next five years could be better off opting for life - time tracker deals.
Ray Boulger, senior technical manager at John Charcol, says the view that the base rate will stay low for the next five years has been steadily gaining ground in the past few months.
As a result, in June John Charcol switched from advising the take-up of fixed rate deals to trackers.
Boulger says: “There will always be clients for whom fixed rates are the best option. But for those trying to make a judgement on where the base rate will go and whether they can afford the rising costs if they are wrong, trackers rep resent the best value.”
He argues that the rates on life - time mortgages are broadly in line with those on two and three-year trackers.
Boulger adds: “Woolwich has cut the early repayment charge period from three to two years on its lifetime tracker deal at base plus 2.29%. When rates like that are available why would you not opt for a lifetime tracker?”
The Centre for Economics and Business Research says the base rate will be 0.5% until at least 2011 and remain below 2% until 2014.
It is also predicting that the Bank will need to spend another £75bn on quantitative easing to cover a wider range of assets than it is buying. The forecasts assume tax rises and spending cuts of £100bn to plug the hole in the government’s finances.
Douglas McWilliams, chief executive of the CEBR, says: “We are likely to see an exciting policy mix, with the fiscal policy lever pulled back while the monetary lever is on fast forward. Our analysis shows this should work. If it does we are likely to see a major re-rating of equities and property which should stimulate growth.”
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