The base rate has been left unchanged since March and many economists believe it will remain at this level for the rest of the year because of the ongoing recession. The next move, whenever it comes, will almost certainly be upwards.
So, is now the time to lock in to a fixed-rate mortgage, or is a tracker a better option?
Demand for fixed-rate mortgages has been strong as borrowers have sought to lock into a fix while interest rates are at their lowest. Fixing was particularly popular in spring, when the average fixed-rate deal was the lowest it has been since the start of 2004.
There are still a few good fixes left. HSBC is offering a two-year fixed rate at 2.94%. This is part of its Rate Matcher mortgage offer, but the rate is only available to those with a deposit of 40% or more, so many borrowers won't qualify. The average two-year fixed rate is 4.01% and many lenders have been increasing the cost of their fixes in recent weeks, increasing the attractiveness of trackers once again.
The rates on tracker mortgages are linked to the base rate so your mortgage payments will increase when the Bank of England starts raising interest rates again. That said, the difference in the rate on the leading tracker deals compared with many fixed rates is such that borrowers are paying a premium to fix at the moment and it could take quite a while before the rate on the tracker increases to the level of the fix - and during that time you'll benefit from lower monthly repayments.
Alliance & Leicester, for example, has the leading two-year tracker at 2.95%. The deal is available for loans up to 75% of the property's value and there is a £499 arrangement fee.
Alternatively, if you'd prefer a longer term deal, First Direct is offering a lifetime tracker at 2.98%. The arrangement fee is £1,499 and the deal is available for loans up to 75% of the property's value. One advantage of this product is its flexibility - there is no early redemption charge (ERC), so you can remortgage onto another product at any time without penalty. The A&L tracker by comparison levies an ERC if you redeem the loan at any time.
However, you need to think carefully about which type of mortgage is most suitable for your needs - fixed rates give security, particularly if you need to budget carefully, as you know exactly what your monthly payments will be for a set period of time. In such circumstances, it's worth fixing, even if you seem to be paying a premium for doing so, because of the peace of mind it gives.
Also, the mortgage shortage continues and the best deals are restricted to those with good credit histories and large deposits, meaning that many people are still struggling to find a mortgage.
You can compare the rates currently available on our mortgage channel, but if you are unsure about what type of loan to go for, it's worth speaking to an independent mortgage broker.
What about the outlook for savers?
Low interest rates have certainly been hitting many people in the pocket and causing particular frustration for those who rely on their savings for part of their income.
Despite that, banks and building societies are desperate to attract money from savers and as a result there is a huge amount of competition in the market and the best savings rates are paying significantly more than the 0.5% base rate. If you are a saver, it is therefore well worth taking advantage of some of these offers.
If you have money you can afford to lock away, it's worth considering a fixed-rate bond.
Because the next move in interest rates will be upwards, savings experts don't recommend you lock your money away for longer than a year or two, in case you find yourself stuck on a rate that becomes uncompetitive.
However, Newcastle Building Society's new two-year postal bond is paying 4.5%, which is fixed until August 3 2011. Alternatively, ICICI Bank's two-year Fixed Rate HiSave account has a rate of 4.35%.
You cannot usually access your money during the term of a fixed rate deal, so if you are looking for a savings account you can dip in and out of an easy access account will be more suitable.
Alliance & Leicester's Online Saver Issue 5 and Birmingham Midshire's Telephone Extra account are both paying 3.15%.
For more information on the best easy access accounts read Kevin Mountford's article 'Leading savings deals unpicked'.
You can also find more information on all the current savings rates by visiting our savings channel.
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