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It is no surprise that in the last few days a number of lenders have withdrawn some or all of their fixed-rate products, while others have made their deals more expensive – some by up to 0.3 per cent.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

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

Remortgaging – making a decision in a world of flux

The other morning I read that record numbers of homeowners are taking out fixed-rate mortgage deals as the threat of another interest rate hike hangs over the heads of homeowners like the sword of Damocles. According to the Council of Mortgage Lenders (CML), around three-quarters of home movers in recent weeks have fixed their monthly mortgage payments in an attempt to protect them from the next rate increase.

At a time when the market can apparently predict with some accuracy when the next rate rise will occur (notwithstanding January's hike, which took most people by surprise), fixed-rate deals are pretty attractive as far as options go. Basically, mortgage lenders assess where rates will go over the next months and so fixed rates rise or fall as a consequence of their calculations. The thing to remember is that the longer the term agreed to, the higher the rate will be.

But this begs the question, what if rates don't go up again? And even if they do, will it matter if lenders have already factored in the possibility? Although the CML says the average interest rate of a fixed-rate loan went up from 5.23 to 5.27 per cent in January, the Sunday Times has found that two-year rates dropped in February, with several deals now below five per cent. This suggests that the current borrowing cycle is close to peaking, if it hasn't already. And while these low rates may seem attractive, some believe that variable rates are better value.

In fact, home loans expert Ray Boulger from mortgage broker John Charcol has said that it is now too late for households to protect themselves against further rate hikes, partly because lenders have had the foresight to include another base rate increase in their deals. He also believes 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.

While variable deals involve lenders setting their own rates, which can rise or fall in accordance with the changes made to the base rate by the central bank, these kind of mortgages come in a range of guises, such as a tracker, capped or discounted, which may add to the confusion. The good thing about remortgaging to a variable rate is that you might get lucky and see the interest rate drop, but on the other hand you might be unlucky and see the interest rate rise. On the other hand, the advantage of remortgaging to a fixed-rate is that the homeowner knows exactly what will happen, although if interest rates drop, they will end up paying more than they might have done if they'd gone for the variable deal. And round and round it goes.

This leaves homeowners with something or a dilemma. They know they should probably remortgage but are at a loss when it comes to making a more concrete decision. Part of the problem is that the world of personal finance is riddled with contradictions and competing narratives. In the end, it means that homeowners have to base their decision on something other than macroeconomics and take a more personal outlook.

Personal judgements (which can be just as valid as those of professional analysts who are themselves merely making educated guesses) must play a part in any decision. Only the individual knows whether he or she will be able to meet repayments in six or 12 months' time. And only the individual knows whether his or her job is stable or if they are contemplating moving house when the kids go to uni. Other homeowners may simply want to play it safe or take a risk, depending on their personality and level of disposable income.

But help is at hand, of sorts, for those who seek it. Entering 'variable or fixed' into Google throws up an innumerable number of websites all clamouring to offer a lamp to the weary homeowner who walks in the valley of darkness where other lost homeowners have trod before. Some of these guides are trying to sell or broker mortgages through their website, which can be useful, although they're obviously in the market to sell a service or product. Price comparison sites are also helpful because they tend to be impartial.

While there is no easy way to make a decision regarding the type of mortgage, a judgment has to be made (even if it the decision to is to do nothing). Like everything in life, remortgaging is a risk and solutions aren't always perfect; nor does reaching a verdict preclude the fact that another type of mortgage may have been the better option after all. In the end, homeowners need to take a chance because there are very few guarantees. But as Voltaire once said: "Doubt is not a pleasant condition, but certainty is absurd."

Author: Richard Mather

Consumers and banks in battle over mortgage exit fees

One of the main bugbears of consumer groups in recent times has been the perception that banks and other lenders are ripping off customers at every given opportunity, a belief that is often grounded in reality. As newspapers continue to report of small battles taking place between consumers and banks over the issue of overdraft penalties and other punitive fees, there is evidence to suggest that mortgage exit fees could be the next campaign of war.

Mortgage exit fees, which used to be a way of covering the cost of paperwork, have grown into an industry, with lenders charging anywhere between £150 and £500. What's worse is that they are applied when a mortgage has run its course, not just when the homeowner decides to remortgage with a cheaper provider. Another irritant can be the fact that exit fees can be raised after the mortgage has been taken out, essentially making the mortgage more expensive.

It means that homeowners who took out a mortgage some years ago and now want to remortgage are being whacked by exorbitant costs, undoubtedly designed to stop people refinancing their loan. Some pundits have described the habit of switching deals on a frequent basis as 'rate-tarting', which apart from being an unfortunate turn of phrase, seems to suggest that finding a better rate with another provider is disloyal or even abnormal. This begs the question, why would anyone want to stay loyal these days when banks seem intent on attracting new customers at the expense of old ones?

I recently read an article in the Yorkshire Post by Jim Spowart, who was the creator of Intelligent Finance at Standard Life Bank, who reckons that the big banks don't place any value on mutual loyalty anymore. Interestingly, he expressed his belief that there are two types of borrower in Britain now – those who are 'rate tarts' and regularly shop around for new mortgage deal and those who "are sitting on their hands, facing stiffer fees, extra charges and higher interest rates" out of a misplaced sense of loyalty.

The upshot is that banks no longer care so neither should customers. And although this is likely to lead to a more comprehensive breakdown in industry-consumer relations, it only seems right that homeowners exercise a bit of common sense and follow the money. This is likely to happen anyway as most experts believe one or two interest rate hikes are still on the cards for this year. At the same time, there is no shortage of personal finance websites urging homeowners to seek out the best mortgage deals before they get pulled by the lenders. Of course, remortgaging is sometimes about consolidating credit card debts onto a mortgage at a low rate of interest – something that is likely to grow in popularity as more and more people struggle with unsecured credit repayments.

Returning to the problem of mortgage exit fees, the Financial Services Authority (FSA) has been looking into the issue since 2005 and it has taken until now for mortgage lenders to do anything about it. Basically, the FSA has said that lenders have to reduce charges now and justify why fees should be raised at all – and since the new rules apply historically, households are now in a position to avenge their grievances. In fact, they have inundated personal finance website Moneysavingexpert with inquires of how to download templates of fee refund letters. A minority of lending institutions have already slashed their fees, which means they are now in line with the FSA's requirements. All of which is good news for ordinary folk with bills to pay.

While it looks like consumers will win the battle over exit fees and recoup some of their money, they might not win the war, as mortgage firms are bound to offset losses somewhere else. Nonetheless, no one expects banks or consumers to slink away from conflict and it could well be that mortgages with high arrangement fees and artificially low introductory interest rates – described by the Liberal Democrats last week as a "trick" – will be the arena for some future fight.

Author: Richard Mather