Is Now The Time To Remortgage Or Not? That Is The Question!
High inflation in the UK has meant that the prospect of rising interest rates is back in the spotlight. Rises in fuel and food costs have pushed inflation further above the Governments target and the Bank of England is now under pressure to raise rates. So, with possible interest rate hikes on the horizon, is now the time to remortgage?
Interest rates have been at their record low of 0.5 per cent since March 2009. However, faced with these recent inflation figures, it seems inevitable that the Bank of England will have to raise interest rates in the next three months. Whilst there is yet to be a consensus on the Banks Monetary Policy Committee (MPC) it seems only a matter of time before rates rise.
Economists are divided about how quickly and how sharply interest rates in the UK will rise. The most pessimistic estimates expect the base rate to reach around 1.25 per cent by the end of 2011 which, we should remember, is still extremely low by historical standards. However, as inflation in the UK is not being caused by an overheating economy, a change in interest rates may do little to quell inflation. So, can borrowers expect rates to fall again when inflation is brought under control?
Considering the action that the Bank of England has taken in the past, it is unlikely that rates will rise and then fall back to their current sub 1 per cent levels. Their policy will require time to take effect and the Bank are also acutely aware that an increase in interest rates would benefit millions of savers as well as encouraging more people to put cash aside. So, it is not unreasonable to expect rates to continue to rise in 2012 and 2013, meaning now might well be a good time to review your mortgage.
When interest rates are expected to rise the demand for fixed rate mortgages normally increases. This is because borrowers want to benefit from protection against increasing mortgage rates. However, will there be plenty of fixed rates available in the market?
As interest rates rise, lenders may be less inclined to offer fixed rate products. The problem may also be exacerbated if a trend of rising rates is established as lenders may hold out for greater returns at a later date.
When lenders expect interest rates to rise, it also has a knock on effect on swap rates the rates at which banks lend to each other. With swap rates rising in expectation of rate increases, it means that fixed rate mortgage products become more expensive. Fixed rates can also become scarcer as lenders regularly have to withdraw deals in response to rising funding costs.
Many lenders withdraw their fixed rate mortgages at short notice, which can be very frustrating for borrowers. ING Direct recently withdrew a five year fixed rate mortgage deal at 4.49 per cent, whilst Santander pulled their 3.09 per cent two year fixed rate at short notice. Other lenders have also withdrawn their fixed rate deals as swap rates have increased.
Of course, rising swap rates does not mean that you cannot take advantage of a fixed rate mortgage. Banks will often re price fixed rate deals in response to changes in interest rates, although it is reasonable to believe that fixed rates will become more expensive as interest rates begin to rise.
Taking these factors into account, now may be a great time to consider a remortgage. If you are looking for a fixed rate, the price of these deals may well only increase over the next few months and years.
About the Author:
Howard writes for Just Commercial Mortgages the UK's No1 site for the latest commercial mortgage rates and commercial property finance news.
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