Recently, many economists, other clever people and city bankers have been almost universally optimistic about the prospects for interest rates, predicting little or no movement in the short term. This seems to have affected borrowers’ choice of mortgage, where we have seen the popularity of fixed rates fall. More borrowers are now opting for tracker mortgages, which follow movements in bank base rate by a given margin for a specific period (a margin which is always above base rate I’m afraid). As tracker interest rates are often cheaper than for a fixed rate of the same term, the news that experts expect bank rate to stay low, has given borrowers some confidence that their gamble may pay off and they might enjoy a lower rate for the whole of the tracker term. HOWEVER, Simon Ward of fund managers Henderson New Star, is doing his best to shake that confidence. In a recent blog he said that the Bank of England could be forced to raise interest rates early next year. His fears surround the Banks August inflation report which forecasts inflation at 2.17% in two years time, above the 2.0% target, and a forecast he thinks could be revised to 2.5% by early next year. With other inflationary controlling measures “off the agenda” according to Mr Ward, the tool most likely to be wielded will be interest rates, where increases when they come, could be larger than in other cycles. Is he correct? Only time will tell. What this does highlight though is even those whose job it is to study the economy, cannot always agree, and while their thoughts can help, it is important mortgage borrowers make decisions which suit them, rather than follow the herd. Doing so should make it easier to sleep at night.
What To Do, What To Do!