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