Remortgaging – short-term pain, long-term gain

A report from the Bank of England (BoE) revealing that the number of loans approved for remortgaging was up in January got me thinking how people go about finding the best deal and what prompts them to make the decision in the first place. Mortgage figures are easy to come by in the world of consumer finance, but the average man and woman on the street are not particularly interested in all the latest developments.

However, one of the main impetuses to remortgaging is interest rate news. Although people in the media are in a position to examine the impact of borrowing cost fluctuations on quite a minute level, most people only start thinking about remortgaging when mainstream news outlets, such as the BBC, mention inflation or the BoE. Obviously, when rates are up or the threat of hikes is apparent, homeowners become painfully aware of how policymakers are making decisions that could potentially erode their disposable income and affect their quality of life.

Before Christmas, internet bank Egg reported that nearly ten million people in the UK were thinking of remortgaging over the subsequent three months because of recent interest rate increases. To highlight the correlation between interest decisions and a change in the temper of homeowners, Egg published figures that showed 60 per cent of homeowners are considering switching to a fixed-rate mortgage, 12 per cent are seeking variable-rate mortgages, eight per cent are considering switching to discount-rate mortgages and 5.8 per cent are contemplating moving to a tracker-rate mortgage.

Homeowners that have their wits about them (and who can afford not to?) can save hundreds or thousands of pounds if they do a bit of homework and review the mortgage market thoroughly. With the unstoppable growth of the internet, I guess most people now look to price comparison sites for an overview of the best deals. Many of these websites feature handy mortgage calculators that swiftly work out how much can be saved by remortgaging to a lower interest rate, or how much it would cost to increase the size of a loan.

Capitalising on the mood for change, these price comparison sites have been urging fixed-rate mortgage holders to remortgage as soon as possible and to act now in order to drive down monthly payments. In fact, borrowers whose fixed-rate three-year deals expired recently would have faced standard APRs of around 6.55 per cent, which is more than two per cent higher than the average rate in 2003. Nonetheless, despite the market being less favourable to homeowners, the general consensus is that there are still good deals on the market.

One of the good things about things price comparison sites – apart from the fact that they're usually impartial – is that they allow harassed homeowners to research the mortgage market in an easy, convenient way. This allows them to compare and contrast current deals with others. In an age where everyone works longer hours and time is precious, these one-stop-shops can be a godsend. At the same time, it is worth checking whether your current lender can provide a better rate.

Changing a lender could be considered something of a hassle, but if it saves a significant amount of cash every year, it's probably worth the short-term pain. Obtaining a redemption statement and finding out whether any upfront costs will be levied is a necessary evil. Basically, homeowners need to seriously weigh up what they would gain by moving their mortgage.

While it is all too easy to get bogged down in the minutiae of remortgaging and become confused by a range of confusing terms and penalties, it is probably best to keep in mind the bigger picture, which is to save money. After all, banks are more than prepared to drive up penalties and rates of interest to augment their impressive profit margins, so it is up to individual men and women to do all they can to hold on to their hard-earned money. If this involves a bit of web-searching and head-scratching, so be it.

Author: Richard Mather

UK in remortgaging limbo as rates decision nears

As the nation looks forward to a well-deserved break over Easter, which could involve a weekend away or painting the spare bedroom, so the Bank of England is preparing to make another interest rate decision on April 5th, something that is likely to be ignored by most Brits who have more pressing things to worry about.

And if the hearts of men and women are not exactly aflame with the desire to know the fate of interest rates this month, some will be slightly concerned whether or not their mortgage payments are about to go skyward again.

Indeed, the last few weeks have seen a rush (of sorts) to remortgage to fixed-rate deals. In fact, the Bank itself has reported that 116,000 remortgages were taken out in February, 9,000 higher than in January, a fairly reasonable indicator that the surprise 0.25 per cent interest rate hike in that month had an unpleasant impact on buyers.

Despite all the talk of remortgaging, which is still a favourite topic among finance journalists and lending firms, the usual media anticipation has been slightly muted this month, almost as if people are slightly sick of trying to second-guess rates. Just in case, you're interested, the general consensus is that rates will probably go up one more time before or during summer, but nobody knows for sure and what happens after that is anybody's business.

At the same time, I think the general public is getting used to having money taken off them through 'legitimate' channels – tax, utility bills, mortgages, loans – despite the fact that wage hikes are failing to catch fire. So it is in this climate of creeping costs that people fall into two camps – those who do nothing and the let tide of rising costs wash over them, while others take a more aggressive approach by taking their business elsewhere. And if this involves people leaving behind their current bank and finding a cheaper deal at another lender, so be it.

As more and more people start worrying whether an economic malaise is starting to set in, experts are now split as to what kind of remortgaging solution is best for the Britain's homeowners. While some pundits still believe that fixed-rate deals are the answer, others are less sure and are wondering if variable-rate mortgage are the future for the time being – especially if rates have reached their peak. This means that homeowners may not want to be locked into fixed rates and may decide to take out capped tracker or capped discount mortgages.

But if experts cannot agree, then how are homeowners supposed to make their minds up? And here lies the problem: homeowners know they ought to remortgage (everyone else seems to be doing it) but do not have much of a clue when it comes to making a concrete decision. And while price comparison sites are very good at coming up with stats and trends and stray bits of advice, somehow there is a feeling at the moment that everything is in limbo.

Still, even if homeowners make the decision to watch the pennies and not spend so much over Easter, then at least some form of saving action is taken. However, it might be even wiser to wait for the Bank of England to make its decision this Thursday and see what the future holds.

Author: Richard Mather