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Are record low interest rates here to stay?

Are record low interest rates here to stay?

Category: Mortgages

Updated: 28/07/2010
First Published: 27/07/2010

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Homeowners have been given something to smile about after experts predicted interest rates could remain at 0.5% until 2014.

With the cost of many of the best mortgage deals already at affordable lows, the news suggests a few more years of competitive mortgage deals might be in the offing.

The Ernst & Young ITEM Club believes economic factors will make it necessary to keep the bank base rate of interest at its historic low of 0.5% until 2014.

The think tank said high energy prices and the VAT increases early next year will keep Consumer Price Inflation (CPI) above target over the next 18 months, but it will then fall sharply as these effects wear off.

To prevent CPI from moving below 1%, the base rate will have to be kept at its 0.5% low, the independent economic forecasting group said.

"A base rate of 0.5% will begin to look like the new normal," said Peter Spencer, chief economic advisor at the ITEM Club.

According to recent figures from the Council of Mortgage Lenders, home movers continue to benefit the most from the current low interest rates, with interest payments on mortgage deals accounting for only 9.5% of their income in May, the lowest level in 35 years.

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