Remortgaging – a cure for interest rate blues?
News that the Bank of England did not raise interest rates this month must have come as a disappointment to those pundits who have built their careers on predicting both the imminent decline of the British housing market and the prospect of hard-working Brits being tossed out on the streets because they can't afford to pay their mortgages. In truth, the bank's decision to hold rates at 5.25 per cent after three 0.25 per cent hikes in six months came as something of a relief to households who have seen the cost of living go up and up.
However, at the risk of sounding like one of these prophets of misfortune, there is a general consensus that we haven't seen the end of rising interest rates. Not only does this raise the question of when the next hike is, but how many can we expect this year. This uncertainty has prompted more than a handful of experts to recommend remortgaging as a solution to this problem. In fact, it has become something of a clarion call as a sense of urgency grips the nation's homeowners and they all pay a visit to their local bank or trawl the internet to find the most competitive deal. Some are going for fixed-rate to protect them from interest rate rises, while others are hoping to avoid being locked into fixed rates at current levels and are taking out capped tracker or capped discount mortgages.
This sense of impending danger has been compounded by frequent warnings – before and after the latest interest rate rise in January – that mortgage lenders are pulling their best deals off the shelves as homeowners look to remortgage. In fact, MoneyExpert has found that mortgage lenders have driven up their application fees in an attempt to increase profits. Since August, remortgaging fees have risen by 18.5 per cent, while the number of products with a fee that exceeds £750 has grown from 13 to 93.
Something else I've noticed is the tendency for experts to imply that everyone else is going for the best deals, while you, the reader, have failed to take action. Only recently, the chief executive of Newcastle-based bank Northern Rock was on BBC Radio 4's Today programme, telling us that a growing number of people are choosing to refinance at the end of their exiting deals, a trend that is likely to continue as rates move ever upwards. However, there is no getting away from the fact that it is in the bank's best interest to plug the remortgaging sector. But even quality newspapers have got into the act. Harvey Jones, writing for the Guardian, recently pointed out that if you have a £150,000 capital repayment mortgage, remortgaging from the standard variable rate to a best-buy deal could cut monthly repayments from around £1,090 to £890. Helpfully, he told us that this is a monthly saving of £200, which adds up to £4,800 over two years.
To be fair, though, a lot of the experts and price comparison sites that issue seemingly endless comment and press releases are acting in the interest of the homeowners and not the lender. Indeed, most experts promise that finding a better mortgage will save hundreds or thousands of pounds.
On a final note, it seems that, along with interest rates, the chief obsession of the middle classes is the direction of house prices, which either up or down, seems to upset somebody. Nevertheless, soaring house price inflation means that a greater number of homeowners now have plenty of equity tied up in their homes, which means that households have the option of either increasing their current mortgage or taking out another secured loan with a different lender to consolidate unsecured debts.
With many experts (and doomsayers) predicting a rate hike before the summer – and maybe one or two in the second half of the year – it seems that homeowners have to do something, even if it's to make a mental note to stop spending so much on credit cards. And there's no getting away from the fact that as the cost of borrowing goes up, so does the number of people recommending remortgaging as a suitable course of action, but in the end it's up to homeowners to decide where their money goes.
Author: Richard Mather
