Get a mortgage at 1.99%

As one report suggests base rate will stay at 0.5% until 2014, we look at the very best mortgages to take advantage.

With interest rates, plenty of us have been saying for a while now that what goes down, must come up. However, it looks like we may be in for a long wait.

Bank base rate has already sat at its record low of 0.5% for 18 months, but this is likely only just the start of it.

The ITEM Club

First we had the Ernst & Young ITEM Club, an economic forecasting outfit, which argued that the Bank of England will need to keep base rate at 0.5% until 2014 in order to balance out the cuts the Government is making as part of its austerity agenda.

It argued that while the Government’s measures are understandable, in order to ensure stability and the possibility of future growth, base rate will have to stay low as a result.

Mervyn agrees

What’s more, the man with arguably the biggest say, Mervyn King, the Governor of the Bank of England, agrees.

King has gone on record as saying that while inflationary fears may lead to the eventual increasing of interest rates, he is very wary about ‘applying the brakes’ too soon. King took the cautious viewpoint that while the economy has started to look a bit stronger in recent months, it wasn’t enough to suggest the time is coming for base rate rises.

The rebel in the ranks

The eagle-eyed among you will remember that some people (and I very much include myself in this group) got terribly excited when Andrew Sentance, a member of the Monetary Policy Committee which sets base rate, voted for a rise in interest rates two months ago. He was the first member to do so in two years, and it seemed that other members may follow him.

Of course, that may still happen in time, but in truth it looks like he is alone for now. Bank base rate doesn’t look like moving a jot for a while

What it means for mortgages

I am quite conservative when it comes to money matters, and have argued for a while that with fixed rates at historically low levels, and base rate set to increase at some point, it makes sense to fix your mortgage for as long a period as you feel comfortable.

And while I still think that’s a sensible move, if Mervyn King and the ITEM Club are right, and base rate will stay where it is for years to come, then a variable mortgage starts to look like a must-have.

For starters, the rates are in some cases substantially cheaper than those on offer from fixed rates at the moment, even though fixed rates look fantastic historically.

What’s more, you can take advantage of those ultra-low rates by overpaying each month. That way you’ll build up your equity stake far quicker, not only protecting you from the threat of negative equity but also enabling you to remortgage at a better loan-to-value when the time comes.

Plus you’ll pay off your mortgage early, thereby saving thousands!

But what if they’re wrong?

In fact, even if the forecasts turn out to be wrong, and base rate does start to move upwards somewhat quicker than expected, it still doesn’t necessarily mean a variable mortgage is a bad choice.

That is, so long as you go for a term tracker mortgage. Rather than offering an initial rate for a year or two and then switching to the SVR, a term tracker follows base rate plus a certain percentage for the entire life of the mortgage. And should base rate skyrocket and your payments become punitive, there are no Early Repayment Charges to worry about – you can just remortgage straight over to a fixed rate!

In my view, term trackers are The safest variable mortgages  around.

Have a look at some of these deals - the cheapest (from Cheltenham & Gloucester) means you'll pay just 1.99% while the base rate remains at its current level!

15 tremendous variable deals

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