The Window Is Fast Closing On Remortgage Options As Interest Rate Rise Draw Closer

Inflation is currently at 4%, so it's inevitable that the Monetary Policy Committee are going to increase interest rates in the very near future. So is it time to go for that remortgage you've been after?

It is likely that we will see interest rates increasing in the next quarter. The Bank of England, a Government monetary bureau, are responsible for interest rates and they have confirmed that there is no option but to increase interest rates from the current 0 .5%. A vote within the Government bureau in February saw a decision to defer any increase, but it is clear that this is a decision that will change very soon.

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 isn't 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's 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.

As you may or may not know, once the Bank of England sets the base interest rate the banks tend to follow, which means an increase in the base interest rate will result in an increase in mortgage interest rates too. With that in mind, now is the time to get a new deal before the interest rates on mortgage deals increase, which they will. And it's already happening and some of the low cost fixed rate mortgages are being withdrawn.

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.

As the fixed rate mortgage becomes more attractive to borrowers then the cost starts to rise too especially as the swap rate, the cost of borrowing to lenders, is slowly increasing too. Lenders are starting to withdraw fixed rate products so scarcity becomes an issue and along with that choice.

Lenders are starting to announce their right to withdraw mortgage products without notice and this has been seen recently with some of the majors axing fixed rate deals. This included a two year 3.09% fixed rate deal, a five year 4.49% fixed and a ten year deal offered by one of the UK's biggest lenders.

New mortgage deals will replace old ones, so don't worry - all is not lost. It just means that new deals will be issued and the rates will generally be slightly higher than the old ones. As a rule mortgage rates (for fixed rate contracts) are usually around 2-5% above the Bank of England base rate depending on the bank and the particular deal that you opt for.

So now that you understand the background, you'll see that if you intend to remortgage, now is the time for action as you're more likely to get the lowest rate now before interest rates increase. What are you waiting for?


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Timothy Frodsham writes for Just Commercial Mortgages.com the UK's No.1 site for the latest commercial mortgage rates and commercial property finance news.