Interest rate uncertainty may cause problems

Just several months ago most consumers and industry officials were pretty sure that interest rates would keep on falling over the course of this year, having already fallen three times since December of last year. Many thought that the base rate would fall to 4% or below by the end of the year, and this came as good news for those that were planning to remortgage to a better deal later in the year.

However, opinions have since changed as a result of soaring inflation levels, with the rate of inflation now having rocketed to almost double the government’s 2% target, standing at 3.8%. As a result of this interest rates have been held since April, and the governor of the Bank of England has indicated that further rate cuts may now have to be put on hold.

Worse still, some industry officials have suggested that in order to bring inflation levels back under control the central bank may even have to look at increasing the base rate again. This is likely to make things very difficult for those planning to remortgage, as many will have no idea what sort of mortgage to opt for in light of the uncertainty.

One official said: ‘I’m not convinced base rate will rise. Even if it does, it may go up only by a quarter of a point, and the Bank of England will have to cut it again next year. Two-year fixes are taking account of bigger rises, while the price of trackers hasn’t changed. Unless you absolutely need the security of a fix then trackers look better value.’