Rates must fall soon, so take out a tracker

Interest rates might not have fallen last week, but Cash is reliably informed that four out of nine members of the Bank of England Monetary Policy Committee voted in favour of a cut. Although house prices have started rising again, a further rate cut is undoubtedly necessary, with lenders reporting rapidly increasing levels of 'non-performing loans'. Thankfully, anecdotal evidence suggests people are trying to curtail their spending, taking pressure off inflation rates.

Economists, including our own William Keegan, expect a base rate cut possibly as soon as March, but by May at the latest. Home buyers can maximise the benefit of any cuts by switching to a tracker that will follow the base rate downwards. Lambeth Building Society is selling loans pegged at 0.25 per cent below base for two years, producing a current rate of 4.25 per cent (£440 arrangement fee). Alternatively, if you are remortgaging and looking for a deal with free legal work and valuation, broker London and Country (0800 373 300) is selling Bank of Scotland loans pegged at 0.51 per cent below base for two years (current rate 3.99 per cent) with a fee of £1,499, or pegged at 0.25 per cent below base, again for two years, with a fee of £599. Borrowers seeking loans of more than £173,000 should go for the 0.51 per cent below base option; those wanting smaller loans are better off with the lower fee.

Savers can mitigate the rate cut damage by making sure their interest is earned tax-free, using their cash Isa allowance. Currently, the best 'no notice' deal is from the Alliance and Leicester, paying 5.2 per cent gross on deposits from £1. If you prefer fixed-rate bonds, Northern Rock is paying 5.01 per cent gross (but taxable) on sums from £1 over one, three and five years.