Remortgaging relief as interest rates “pinned to the floor” until 2014

| July 26, 2010 | 0 Comments

Mortgage borrowers will be pleased to hear that interest rates could be “pinned to the floor” until 2014.

The prediction comes in the latest report by respected economic forecaster, Ernst & Young Item Club, which at the same time acknowledges that high energy prices and the VAT rise due in January will keep inflation above the Government’s target of 2%, for the next 18 months.

However, the Club’s analysts believe that inflation will then fall “well below” 2% as “spare capacity bears down on pricing decisions and wage bargaining”.

The study therefore concludes that the Bank of England will need to keep the base rate at 0.5% until the end of 2013, although this is dependent on impending government spending cuts coming through.

Item Club chief economic advisor, Peter Spencer, comments: “A base rate of 0.5% will begin to look like the new normal.”

Low interest rates have led to a steep decline in mortgaging activity as borrowers coming to the end of fixed-rate deals have opted for their lenders’ relatively attractive reversion rates.

The trend is not entirely down to lethargy as among those currently on standard variable rates are homeowners with poor credit histories and/or little equity in their properties, who would be excluded from the best deals should a rise in the base rate prompt them to shop around for a remortgage.

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