Are you planning to remortgage?

Over recent months many people with mortgages have decided to remortgage for one reason or another. Some have come off special deals that were valid for a limited time and have been forced to remortgage or risk the expensive of being pushed onto the lender’s standard variable rate, and others have decided to remortgage because they can get a better deal elsewhere, saving them money on their borrowing. However, a recent report has shown that there could be a dilemma now facing those planning to remortgage, as there is now confusion over what will happen with interest rates.

Until recently many were convinced that interest rates were going to continue falling over the course of this year, having already been cut three times since December of last year. Some optimistic industry officials were even predicting that the base rate could fall to below 4% by the end of the year. However, spiralling inflation levels have now changed these predictions. Inflation has now soared to 3.3%, with the government target being just 2%, and the governor of the Bank of England has had to explain the reasons behind the rise in inflation to the Chancellor, Alistair Darling, along with details of how the central bank plans to bring the rate of inflation back down to target.

King had indicated to MPs that further interest rate cuts will now be put on hold for fear of inflation spiralling further out of control, and has said that the Bank will have to do whatever is necessary to bring inflation back down, although he did add that the Bank would try to avoid rate rises given the bleak outlook for the economy. However, the mixed messages over interest rate movement is making it difficult for those planning to remortgage to make a decision with regards to what sort of mortgage to go for.

Industry officials are also offering mixed advice to consumers. One official recently said: ‘If you are OK knowing you must stick to the deal or pay redemption penalties, then go for a fix.’

However, another official said: ‘I’m not convinced base rate will rise. Even if it does, it may go up only by a quarter of a point, and the Bank of England will have to cut it again next year. Two-year fixes are taking account of bigger rises, while the price of trackers hasn’t changed. Unless you absolutely need the security of a fix then trackers look better value.’

A further knock for consumers comes in the form of rising mortgage arrangement fees, which have also rocketed recently. The HSBC is now charging some consumers £10,000 to remortgage to its popular Rate Matcher mortgage, stating that it had to either increase the fee or take the mortgage off the shelves. Alistair Darling is now in talks with the Financial Services Authority over the fairness of huge mortgage arrangement fees, and has warned banks to stop ripping consumers off with extortionate fees.

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Tags: mixed advice, standard variable rate, security, rate cuts, Central bank, arrangement, remortgage, convinced base rate