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It is no surprise that in the last few days a number of lenders have withdrawn some or all of their fixed-rate products, while others have made their deals more expensive – some by up to 0.3 per cent.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