A fixed mortgage prevents security against rising interest rates. At the moment, interest rate increases are mainly driven by a rise in interbank lending, rather than an increase in the base rate.
Predictions for Interest Rates in UK
With house prices falling and the economy slowing, the Bank of England will be looking to cut rates. If house prices continue to fall at a very quick rate, we could see the UK face the prospect of a recession. IF the UK enters a recession, interest rates could fall as low as 3.5%. However, a recession is unlikely at the moment. Also the interest rate predictions are complicated by the impact of cost push inflation. Driven primarily by rising oil prices, manufacturers are experiencing unprecedented rises in the cost of production. Therefore, the Bank has to be more cautious in cutting rates.
- Prediction for beginning of 2009, interest rates 4.25%.
Therefore, with the prospect of lower interest rates, current fixed rates may not offer good value. However, with standard variable mortgages there is no guarantee that the banks will pass on base rate cuts anyway. With this in mind a tracker mortgage offers good value. A tracker mortgage is fixed to the Bank of England base rate and therefore as the Bank cuts base rates, homeowners will benefit from lower rates. The only problem with tracker mortgages is that many homeowners require a large deposit to be eligible for a tracker mortgages