A war of words has erupted between two Bank of England experts responsible for setting interest rates – adding to the uncertainty faced by mortgage borrowers. Andrew Sentance and David Miles are both members of the Bank’s Monetary Policy Committee, but they take different views on where interest rates should be heading in the immediate future.
Their views are important, because Bank of England base rate affects mortgages – both because most tracker deals are tied to the rate, but also more generally.
In comments last week Dr Sentance repeated his view that interest rates need to rise to stem inflation. Meanwhile, Mr Miles argued that with the economic recovery still fragile, to raise interest rates now would be too much of a risk.
It’s weeks since Go Remortgage News pointed out that there was a window of opportunity for mortgage borrowers. That still looks true – regardless of whose view of the economy and interest rates is correct. With some experts arguing for a rise in rates, homeowners seeking security may choose a fixed rate deal over a period of years – two, five or even more.
On the other hand, if property prices fall and credit becomes harder to come by, remortgaging may become trickier for borrowers – the term “mortgage limbo” has been coined to describe the situation of those without the scope to strike a new mortgage deal. So there are plenty of incentives to consider remortgaging options now, particularly for those currently on their lender’s standard variable rate or who are temporarily paying their mortgage on an interest-only basis.
The good news is that average interest rates on mortgage deals have fallen to their lowest level for years, according to recent figures. And with property values having risen steadily for more than a year, many have the equity in their homes to take advantage of the opportunities such low rates present.
Tags: Economy, Housing Market, Industry, Markets
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