Remortgaging After A Rise In Interest Rates
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Does a rise in interest rates increase incentive to remortgage
In the UK the Bank of England recently increased interest rates to 5.25%;
this is the third rise since last summer. The effect of this is to increase
substantially the cost of mortgage interest payment for those with variable or
tracker mortgages. For example if you have a £150,000 mortgage a quarter point
rise will add £43 on to a 30 year mortgage. With the rise in variable mortgage
many homeowners are seeking to get a fixed rate deal. The advantage of a fixed
rate deal is that you will be insulated against any further rate rises and thus
it can make financial planning easier and more stable. However the big bank
lenders have already started to review their fixed rate deals and they are
increasing the interest rates on their fixed rate deals accordingly.
A key feature on the relative merits of a fixed rate mortgage is the extent
to which interest rates are likely to rise further. To a large extent your guess
is as good as anybody else’s. A lot depends upon the future trends of inflation
and interest rates. If the recent rise in inflation was an unexpected one off,
(mostly it was due to higher taxes and energy prices) then there may be little
need for future interest rate rises. If this is the case a variable or tracker
mortgage may offer a better deal. On the other hand the UK economy is quite
buoyant; in the last year it grew by 3% and is forecast to grow by 3% in 2007
and 2008. 3% is slightly higher than the UK’s long run trend rate of growth and
therefore could be inflationary in future years. Inflation could be a particular
problem especially if there are continued rises in commodity prices due to the
fast economic growth in China and India. If you are to get a fixed rate mortgage
it is probably advisable to go for a longer term period of 4 years. This gives
you the advantage of having stability in your interest payments for a long time.
If you are considering a remortgage the first port of call should be your
existing mortgage lender. These days before switching your mortgage to another
bank or building society it is always worth asking your existing lender to see
whether they can give you a better deal. In recent years there has been an
increasing tendency for financial institutions to try and hold on to their
existing mortgage holders. It is likely your current lender is now willing to
give you the same preferential treatment as they might to a new customer or
someone who is Remortgaging. The advantage of sticking with your existing lender
is that you are much more likely to avoid high penalty charges and
administration costs. With regard to fees, there has also been a pattern that
these have become more costly. This is to make it more difficult to switch from
your account.
About the Author
Richard Pettinger studied Politics and Economics at Lady Margaret Hall,
Oxford University. He now works as an economics teacher in Oxford. He enjoys
writing essays on Economic and he edits an Economics Blog focused on UK and US
economies:
http://www.economicshelp.org/econ.html
Follow us @Scopulus_News
Article Published/Sorted/Amended on Scopulus 2007-04-07 15:28:26 in Business Articles
