John Charcol - Variable rate mortgages the product of choice

Ray Boulger of leading independent mortgage adviser John Charcol comments on the outlook for mortgage rates following today's inflation and retail sales figures.

"Gilt yields have fallen sharply today, e.g. by 0.12% on the benchmark 5 year gilt, following the much better than expected inflation figures and even worse than expected retail sales figures. Maybe economists should just stop forecasting these figures in order to improve their standing in the community, but on a more serious note the significant margin of error in their forecasts calls very much into question the GDP forecasts for the 2011 Q1 numbers due on 27 April.

"With retail sales being such a large component of the GDP numbers it looks like being a close call as to whether or not the Q1 2011 number will be in positive territory. In reality the difference between a very small positive or a very small negative number is not very material but psychologically it will be huge. A negative number, which would push us into a double dip recession, would guarantee a large amount of negative media coverage. This would almost certainly dent consumer confidence even further from its already low level, resulting in a further reduction in consumer spending. It would also be very embarrassing for the Government.

"The silver lining for mortgage borrowers is that it defers even further an increase in Bank Rate and indeed there now looks like a very serious possibility Bank Rate could still be 0.5% at the end of the year.

"The proportion of our clients choosing a fixed rate had been rising for several months until February, when 56% took a fix. As fixed rates rose, whereas tracker rates didn't, thus increasing the premium for the security of a fixed rate, the proportion of clients choosing a fixed rate fell last month to just under 50% and with the outlook for interest rates over at least the next few months transformed by today's figures the advice for anyone wanting a fixed rate is to wait for rates to fall. In our opinion for borrowers not needing the security of a fixed rate, tracker and discount rate mortgages continue to offer better value."