Five interest rate hikes in less than a year have prompted a rush of remortgages as homeowners frantically search for cheaper options, rather than reverting to standard variable rate mortgages once their fixed rate deals expire. Since August 2006 the Bank of England base rate has jumped by 1.25 percentage points to its current rate of 5.75%, representing a real rise of almost 28% in the true cost of repaying mortgages. Borrowers on fixed rate deals due to expire and revert to standard variable rate, have been driving the fixed and discounted remortgage market.
However, many of those who have remortgaged may regret it in the near future as many analysts are predicting the end of the interest rate rises, with a maximum Bank of England rate of 6% predicted for the end of the year. If the analysts are right in their assumptions then homeowners would be better advised looking at SVR mortgages rather than opting for the fixed rate deals at the top of the market. Mortgages tied into the base rate, such as trackers are being favoured over discounted products as the latter can vary depending upon what rate the mortgage company decides to set their SVR, whereas a tie-in to the base rate leaves no room for doubt.
Ray Boulger, spokesperson for mortgage broker John Charcoal says: “With a tracker mortgage, borrowers know exactly where they stand, as they have agreed at the outset what the margin will be over or under the base rate. But, with a discount you are at the mercy of the lender who could raise the SVR so much that the discount is meaningless. I believe that base rate has peaked, so unless you need that cast-iron certainty of knowing the exact amount of your mortgage repayments over the next few years, choose a variable rate tracker.”
With many lenders charging high fees for
UK remortgages a growing number of borrowers are turning to tracker mortgages. Instead of paying a percentage of the remortgage amount as fees every two or three years, they have decided that it will be cheaper in the long run to stick with a tracker mortgage, just so long as there is no tie-in early repayment penalty.
Remortgages accounted for the vast majority of gross lending during the month of July according to the Council of Mortgage Lenders, emphasising the amount of lending to existing homeowners. It would appear that, despite ever-rising prices, the housing market is now showing real signs of slowing, as the interest rate increases are now finally starting to bite.
