Mortgage Rates Set To Remain Low

Mortgage rates are set to remain low over the next few months, providing a boost for anyone looking to take out a new mortgage or remortgage.  That’s the view of the Governor of the Bank of England who has indicated that he expects interest rates in the UK to remain low as the country recovers from recession.

Despite the recent rise in inflation, Mervyn King expects inflation to reduce in forthcoming months and so has suggested that there is no need for a knee-jerk hike in the Bank of England Base rate.

Inflation more than double the government’s target

Despite inflation in the UK rising to 4.5 per cent – more than twice the government’s target of 2 per cent – Mr King believes that there are temporary factors causing this and that inflation will fall in 2012 and 2013.

Increases in air fares for Easter, rises in energy and petrol prices and hikes in alcohol and tobacco duty pushing up the prices of cigarettes, beer and wine have been blamed for the rise in the cost of living.

Interest rates to remain low

Whilst the minutes from the most recent meeting of the Bank of England’s Monetary Policy Committee (MPC) showed three members voting for an interest rate rise, Mr King has indicated that such a hike is unlikely.  This is because there are serious concerns about the impact of increased borrowing costs on millions of British households.

Mr King said: “The economic consequences of high-level indebtedness now would become more severe if rates were to rise.”

Many experts agree that raising interest rates could damage the economy.  Andrew Smith, from accountants KPMG, said: “The picture is still of a fragile underlying economy and with austerity measures now starting to bite, a rise in interest rates could be the undoing of the recovery.”

Borrowers to continue to benefit from low rates

With the Bank of England Base rate set to remain at its record low level of 0.5 per cent for some months, borrowers are likely to continue to benefit from low mortgage rates.

If you’re looking for a new mortgage or remortgage then now is an excellent time to consider a fixed or discounted rate.  Discounted rates are likely to offer lower initial repayments although they will result in increased payments at the point where interest rates finally start to rise.

A fixed rate may result in higher initial repayments but it will protect you against future interest rate rises.

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