Inflation falls back but remortgaging is still an option

Those homeowners who have been keeping their eye on the news recently will probably know that consumer prices index inflation has dropped back after March's worrying high of 3.1 per cent and is now at a more comfortable 2.8 per cent.

Of course this is good news for homeowners who have had to cope with four interest rate increases since last August, which has seen the cost of monthly mortgage payments shoot up, hitting those on variable rates particularly hard.

Over the past month or so there has been little let-up from banks and price comparison sites urging borrowers to remortgage to a cheap fixed-rate deal and I don't think they're going to stop just because inflation has come down slightly.

This is because long-term inflation is something the Bank of England still has to tackle. And unless it becomes clear that underlying price pressures are easing, it is more than likely that the Bank of England will vote to raise rates again over the next three months.

Even as I write, the Bank has released its latest quarterly inflation report in which it suggests that rates will have to go up at least once more this year to bring prices under control. It is eminently sensible, therefore, that households take action now to ensure some level of protection, as another increase is likely to drive up fixed rates and reduce the discounts on tracker mortgages.

After last week's rate rise, it was widely reported in the nation's press that homeowners with a typical mortgage of £100,000 will have to pay an extra £16 a month. Now, this may not sound a lot of money but it does come on top of three other rate rises and a steady increase in the cost of unsecured borrowing. And with many people already at breaking point, an extra £16 a month could make a real difference.

However, I wouldn't want anyone to panic themselves into remortgaging. After all, people need to enter these kinds of decisions with a clear head. There are also a few things to watch out for, including mortgage arrangement fees, early redemption charges and increased lending charges. Borrowers should always find the most suitable loan – whether it be a tracker or a fixed rate – and carefully consider the length of term required.

Whatever happens, it is always best to have made some kind of decision, so that at least you're mentally and, hopefully, financially prepared for another rate hike. There's nothing worse than being taken by surprise and being at the mercy of events. Making a decision as to the future direction of your finances is an important step and one that cannot be taken lightly.

Author: Richard Mather

Interest rates go up – but what next for homeowners?

As expected, the Bank of England's monetary policy committee raised (MPC) interest rates by 0.25 per cent today, which is good news for savers but bad news for mortgage holders.

Ever since it was revealed that consumer prices inflation broke through the three per cent barrier in March, finance experts and banks have been preparing customers for the inevitable and homeowners have responded by remortgaging to cheap fixed-rate deals.

Of course, pundits love to be proved right when it comes to interest rates, although they're probably not in the same financial dire straits as many of their fellow citizens, who are up to their eyes in debt. For example, today's announcement means that a homeowner with a typical £100,000 mortgage will have to find another £16 a month – and this follows three rate hikes that took place between August and January.

While any rate rise is bad news for households – especially those who didn't read the signs and failed to remortgage – at least it wasn't the dreaded 0.5 per cent hike that some pundits were predicting. If this had happened it would have been the first time in the MPC's ten-year history that rates had gone up by half a per cent in one go.

Having said that, there is a strong possibility that rates will rise again at some point over the next three months, which could be something of a problem for homeowners already struggling with mortgage payments and other monthly outgoings, such as council tax, utility bills and unsecured debt repayments.

However, for those of you who have already remortgaged to a good rate, it is unlikely that a further rate hike will have much of an impact as I have a strong suspicion that many lenders factored in this possibility before publishing their new rates at the end of April and the beginning of May.

This means that homeowners are now roughly split into two camps – those who made the effort to remortgage and those who didn't for various reasons. However, today's news – which has been overshadowed by Tony Blair's resignation announcement – will probably be the impetus needed for borrowers to get their house in order before the MPC makes its next decision in June.

But this begs the question, what if rates don't go up again? This is not a spurious question but something that is being asked by some experts, who believe that inflation is about to come down as the UK's lending cycle peaks.

Not so long ago, I remember reading that home loans expert Ray Boulger from mortgage broker John Charcol believes it could be too late for households to protect themselves against further rate increases. He went on to say that borrowers could be better off going for a variable-rate mortgage, especially if rates have reached their peak and take a downward turn in the near future.

Of course, while this kind of view is an interesting addition to the rates debate, it is more than likely that households will be eyeing up the latest fixed-rate deals in the windows of their bank or on the many websites devoted to this issue.

Author: Richard Mather

Homeowners in limbo as interest rate decision nears

Next week, the Bank of England will announce whether interest rates are going up, coming down or staying the same. The smart money is on a rate hike of 0.25 per cent, although it is impossible to be certain. Back in December, it was widely held that rates would still stay on hold the following month, but the bank did its own thing and surprised everybody by raising the cost of borrowing.

Anyway, what I'm trying to say is that nothing is certain when it comes to money and economics, but this has not stopped mortgage lenders pulling their best products and replacing them with more expensive ones. Nor has it stopped price comparison sites and other speculators lamenting the demise of the cheap fixed-rate loan. Indeed, their repeated cries for borrowers to take action now and remortgage to a good deal have sounded something like a call to arms in recent weeks.

In addition to this month's rate rise, there are experts aplenty who expect rates to rise more than once after May, which means we could end the year with a base rate at 5.75 or six per cent. Last month, a group of economists wrote an open letter to our economic overlords suggesting that rates may have to rise to seven per cent next year to bring inflation into line.

However, more moderate analysts either believe this is unlikely or are unprepared to envision such a scenario, especially as it is a reminder of the boom-and-bust days under the Tories in the 1980s and early 90s.

You can't really blame people for getting into a tailspin about all this. Just a small rise in monthly outgoings could prove very difficult for some households, especially if they are already struggling with unsecured debt, council tax requests and energy bills. It is not surprising that many homeowners are taking a 'safety first' approach to their finances and signing up to a fixed-rate deal. At least this way they have the security of knowing their outgoings won't rise every time the Bank of England pushes up rates.

Despite all the excitement, the Council of Mortgage Lenders expects inflation to fall back to two per cent in a matter of months and has warned against pessimism in the market. In fact, some experts believe that the UK is near the peak of its current tightening cycle and that the interest rates will start to come down next year. If this is the case, then some brave homeowners may be willing to enter into a variable rate deal now, which could mean higher mortgage payments over the next few months and reduced payments when rates start to fall in 2008.

Over the past week or so, lenders and price comparison sites have been much less vocal about mortgages, an indication perhaps that we have entered the calm before the storm. The media are much more focused on the political implications of the May 3rd elections – a full week before the Bank of England announces its decision. The closer we get to the rate announcement the less point there is trying to predict the future, although it is fairly safe to say that until the bank decides one way or another, households across the country are in limbo.

Author: Richard Mather

Interest rate panic still fuelling remortgaging fever

Over the past week, there has been no let-up in the number of personal finance sites and lenders urging people to remortgage to a cheap fixed-rate as soon as possible, following news that consumer prices inflation has breached the three per cent barrier, thereby raising the possibility of an interest rate hike next month.

Although the hype about inflation has died down a bit, the lingering likelihood of higher borrowing costs will have no doubt left a bitter taste in the mouths of homeowners, who already have to cope with the three rate hikes between August and January.

Economists are now almost certain that interest rates will climb to 5.5 per cent next month, with many predicting a further 0.25 per cent rise in the summer. More worryingly, a number of experts have written to the government warning that rates may need to rise to 7.5 per cent to control inflation.

Of course, if this happens it could tip some homeowners over the edge, which makes remortgaging to a cheaper rate all the more important. Nevertheless, it is easy to panic too much and forget the dark days of the 1980s and early 90s when rates of around 13 per cent were not unusual.

Unsurprisingly, the media focus has been on fixed-rate mortgages, which seem to be the most obvious antidote to higher interest rates, especially as they offer peace of mind to those who enjoy knowing their payments are the same every month.

However, lenders are reluctant to let borrowers have too much of a good thing and have been busy withdrawing their best deals, which is why there is some panic among homeowners to take action now.

Even as I write, a quick search on Google shows that many lenders have already introduced a spate of new, more expensive deals ahead of next month's rate decision. Even so, if it is still worth checking them out because there is no sign that inflation is set to fall consistently in the near future.

Although the prospect of chasing after a new deal may seem an unwelcome task, the process of remortgaging is not as arduous and time-consuming as people think, and it could well be worth it in the long-run. Making a phone call to a bank or broker is one way of doing it. The internet is also a useful tool, as it is brimming with comparison tables and mortgage calculators.

But by leaving it too long, households run the risk of missing out and will have no other choice but to opt for a higher-rate deal. Failing that, they could wait and see what course of action the Bank of England decides to take in the coming months, but they may end up paying the cost for doing nothing.

Author: Richard Mather

Remortgaging – a homeowner's solution to high inflation?

News that inflation has climbed to 3.1 per cent – the highest level since the Bank of England gained independence in 1997 – has caused an almost tangible buzz of excitement within the media and financial services institutions. Coupled this with the fact that the pound is getting stronger against the US dollar, and it is no surprise that everybody is predicting a rate rise next month and one or two later in the year.

For the past couple of weeks, I've suggested that the market has slipped into automatic pilot when it comes to interest rates, with even the newspapers remaining muted on the issue. However, since this week's fuss about rising inflation and the weak dollar, it is a fairly safe bet that most experts expect the cost of borrowing to rise very soon. Of course, it raises the question of how many rate rises can we expect this year and whether remortgaging is the ultimate solution for homeowners.

In recent times, the repeated urge to remortgage has become something of a mantra as price comparison sites encourage borrowers to pay a visit to their lender or trawl the web to find the most competitive deal. As a result, many households will go for a fixed-rate to protect them from future interest rate rises, while others will seek to avoid being locked into fixed rates at current levels and take out a capped tracker or capped discount deal instead. Many others will do nothing at all.

It is no surprise that in the last few days a number of lenders have withdrawn some or all of their fixed-rate products, while others have made their deals more expensive – some by up to 0.3 per cent. As such, a number of price comparison sites are urging homeowners to remortgage to a fixed rate as soon as possible, with warnings aplenty that they will suffer if they fail to act now.

Of course, if rates rise more than once this year (or are just expected to rise, which can be just as bad), then the whole mortgage market could be reconfigured as lenders struggle with the demand from borrowers hoping switch their mortgages to a better rate.

Interestingly, one bank has become so eager to increase its share of the remortgaging market that it has invited customers from Halifax, Abbey, Lloyds TSB, C&G, Woolwich and Barclays to remortgage to a cheaper fixed, discount or tracker deal or receive £1,000 if a better rate is not possible.

All the talk about rates and what it means for the average homeowner and the nation may fill column inches and website pages, but it presents a real concern for ordinary folk who have bills to pay and mortgages to afford. Only this week, a survey by Alliance Trust revealed that households are struggling with their finances, although they are continuing to spend money on consumer goods.

It was found that households are becoming increasingly stretched in an effort to maintain their existing lifestyle, with secured and unsecured debt becoming an ever bigger burden for many households. Of course, this raises the unwanted spectre of repossessions – the ultimate nightmare for homeowners.

In simple terms, if the Bank of England raises interest rates one, twice or even three times this year, then homeowners – many of whom are already struggling to make ends meet – could be in real trouble. As such, it may be advisable for borrowers to give some serious thought to remortgaging as it may be the only way to prevent their finances spiralling out of control.


Author: Richard Mather

Expect mortgagors to make hay while the spring sun shines

News that the Bank of England voted to hold interest rates for the third month in a row on Maundy Thursday must have been welcomed by the nation's homeowners, some of whom have felt compelled in recent months to remortgage to better deals in an attempt to stave off the worst effects of increased borrowing costs.

Of course, every time the Bank holds rates, it only makes the day when they actually go up seem more inevitable. But for now, let's be thankful that our economic policy-makers in the capital decided to wish us a cheap and stress-free Easter.

However, while all is quiet on the interest rates front (which may not last long), banks and other mortgage providers now have to find another way of encouraging people to remortgage to a cheaper deal.

In fact, only last week, mortgage provider Northern Rock said it expects profits to grow as people attempt to consolidate unsecured debts by using the money tied up in their property. Chief executive Adam Applegarth, who was understandably upbeat, said that remortgaging now represents nearly half of the mortgage market – a direct result of people trying to tackle their credit card bills and other debts.

So it should come as no surprise that lenders are using the optimism that comes with spring to launch a new batch of mortgaging products.

Indeed, I noticed the other day that RBS has launched a new fixed-rate for buyers and homeowners hoping to remortgage, while Pink Home Loans has launched an "exclusive" fees-free remortgage deal from Intelligent Finance. At the same time, Britannia Building Society has said that remortgaging customers can switch to one of its fixed-rate deals either for free or for a "very competitive rate".

No doubt a host of other lenders and banks have introduced – or are about to roll-out – new and improved remortgaging rates to persuade people to consolidate their debts or to pay for a loft conversion.

I suppose as it is the Easter season, some homeowners have already decided to splash out on their home and have raised the money to do so by remortgaging. I can imagine there were quite a few households who started ambitious DIY projects over the Easter weekend – maybe a conservatory or a newly landscaped garden in time for the summer sun.

Having said this, a report by Woolwich at the start of April revealed that the Great British public is getting a bit sick of DIY and all those home makeover programmes that dominate the TV schedules in the evenings. In fact, the study showed that most homeowners would rather pay a professional to undertake tasks such as painting and decorating, building an extension and installing a new kitchen or bathroom.

The same piece of research also said that households are increasingly looking to use their mortgages to fund improvements to their homes. In fact, Woolwich used the opportunity to tell the world that it is able to reduce customers' outgoings on a monthly basis by remortgaging.

So, until the Bank of England decides to make life a bit more expensive for already-stretched homeowners, it is likely that lenders will debut some interesting marketing strategies to encourage people to remortgage. And if the summer this year is as hot as the Met Office predicts, then expect lenders to make the connection between global warming and raising enough capital to pay for next-generation wind turbines and solar panels.

Author: Richard Mather

Remortgaging – paying off debts and financing home improvements

The other day I read a report from national money education charity Credit Action revealing that British consumers borrow £360 million every day, most of which is secured borrowing. However, a significant slice of the borrowing cake is unsecured – £36 million per day to be exact. This means that millions of Brits have to find ways of repaying these personal loans and credit cards, sometimes with high amounts of interest.

The total amount of personal debt in the UK now stands at around £1.25 trillion, a huge figure, but one which becomes meaningless when it is seen time and time again. However, this has not stopped journalists and experts from using this particular statistic to predict a doomsday scenario where half the country is bankrupt and out on the street. Although having said that, it is sobering to note that 289 repossessions actions are initiated on a daily basis, according to Credit Action.

So while people in the media see no end to the problem of personal debt on a national scale, it seems that normal individuals are slowly resigning themselves to a future of high debt and high spending. In fact, a recent survey by the Bank of England showed that most debtors could not rule out the prospect of going bankrupt, with some admitting they were considering individual voluntary arrangements or bankruptcy as a way out of the situation.

At the same time, more and more people are being encouraged to improve their homes – such as adding a new bathroom or building an extension – because it is an apparently sure-fire way of adding value to a property. The deluge of DIY programmes that clog up the TV listings every evening, combined with the fact that carrying out home improvements is a much cheaper option than purchasing a new house, means that households are now dreaming up news ways of raising cash. In fact, the British Insurance Brokers' Association has predicted that £57 billion will be spent on home improvements over the next six months or so.

So if homeowners are struggling to pay off debt and finance home improvements at the same time, then it is increasingly likely that they will give serious consideration to remortgaging. In fact, many finance experts believe that the best way to raise money for these purposes is go through an existing mortgage – usually much cheaper than other sources of borrowing when it comes to interest payments, although it does add to the overall mortgage term.

This brings to mind a study by MoneyExpert that found almost a fifth of debt consolidators have remortgaged their home in the last three years in an attempt to get their borrowing under control. Days later, another study, this time by Legal Marketing Services, suggested that British borrowers are releasing equity from their homes through remortgaging in "ever-increasing numbers". The firm said that the total value of remortgaging in the final quarter of 2006 amounted to £9.5 billion, which is quite an impressive figure.

If these findings are to be believed (and there are many others that are in a similar vein) then it must be the case that there are plenty of homeowners out there who are remortgaging for some reason or another. And while I don't doubt that most people have a good reason for releasing cash through their home, it must always been done with a clear head and never out of a sense of panic.

Borrowing against a property increases the risk of repossession, so it's always best to make sure that repayments can be met with some margin of confidence. After all, remortgaging to pay off debts or to pay for a new kitchen will have a long-term impact on a household's finances, so it's best not to rush into anything without seeking advice from a lender, broker or price comparison site.

Author: Richard Mather