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Interest Rates?

While there’s plenty of talk about when the Bank of England will raise inerest rates, there’s no indication of it doing so in the near future.

In fact, one leading housing market commentator, Roger Bootle, reckons the base rate will remain below 1% for the next five years.

And a study by the Centre for Economics and Business Research, while not as bullish as Bootle, still predicts that the base rate will stay at 0.5% until at the earliest and remain under 2% until .

So what does all this mean to mortgage holders and first time buyer wannabes?

The gist of it is that despite the fact there will never be any clear consensus among economists about which way rates are heading, no-one is predicting they’ll rapidly go up.

This is the sort of thinking that will make variable rate tracker mortgages more appealing. So it’s worth taking a look at just what the savings are for those opting for a variable rate compared to fixed mortgage now.

What’s immediately clear is that all variable rate deals, regardless of which type they are – trackers, discounted or standard variable rate – are at least a full 1% cheaper among the best buy products on the market when compared to their equivalents in the fixed rate arena.

Tracker and other deals

One offer stands out at the moment – HSBC’s two-year discounted rate at 2.29%. The drawbacks are a massive £1,499 arrangement fee and the fact you need at least 40% equity to secure yourself a deal. But it does give a flavour of just how cheap mortgage deals are at the moment.

Compared to the HSBC’s discounted deal, the best fixed rate and tracker deals are the Principality Building Society’s 3.44% fixed rate for two years and which comes with a £999 price tag and ING Direct’s 2.59% two-year tracker which comes with a £795 arrangement fee. Likes HSBC’s variable deal, these two are only available for those with a 40% deposit.

It’s when these seemingly small differences in percentages are converted into hard cash that the attraction of going for a tracker rate mortgage truly reveals itself. On a straightforward repayment mortgage of just £150,000, the tracker would set you back £680 a month while the fixed rate would cost £746. Over just the two-year length of the tracker, that would save you more than £1,500.

The key is for anyone still pondering the benefits of a fixed rate is to ask themselves whether they think rates will increase by more than 1% over the two-year lifespan of a discounted mortgage. And if they think like most economists, then their answer will be a confident “no”.

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