With the Base Rate Lying Dormant, People are Rushing to Remortgage Before the Rate Rise in 2012

Since the financial crisis in the UK, the Bank of England base rate has remained at its all time low of just half a percent.  However earlier in 2011, the Monetary Policy Committee of the Bank of England confirmed that although they had voted against an increase at the time, an increase later in 2011 was inevitable. The Governor spoke out and said that it was impossible for rates to stay so low if we are to see the economy of our country recover.

The Bank of England’s decision to leave rates well alone in the first quarter of the year were down to figures showing that the recovery of the UK financial markets was sluggish and the increase would have slowed it further.

How Does This Affect Homeowners? People who own their own property and are currently on a rate that tracks the Bank of England base rate may be concerned at news of a potential increase. These mortgages are designed to increase or decrease in line with movements in the base rate.

A hike in interest rates will affect millions of variable rate borrowers.  It is also likely to come as a shock to people who have enjoyed the benefit of low mortgage repayments over the last couple of years.

For instance, if the Bank of England increased the rate of interest by merely 0.5% to 1%, it would be liable to inflate monthly repayments by approximately £43 on an standard £150,000 tracker mortgage. In these wintery economic times, with inflation skyrocketing, this additional £516 a year would be likely to cause a lot of financial pain.

Far from being a matter likely just to affect a small section of homeowners; the rise in rates could have far reaching consequences. It is believed that nearly two thirds of borrowers have tracker rate mortgages.  It is thought that a growing number of these borrowers are beginning to look for alternate remortgage deals.

Figures Show Many Now Remortgaging to Hedge Against Interest Rate Hikes: An organisation called the Council of Mortgage Lenders, who represent almost all mortgage lenders in Britain confirmed that remortgage figures had increased by almost a fifth in the first quarter of this year following the announcements by the Bank of England.

A statement issued by the CML said: “The huge rise in remortgage activity is likely to be linked to the expectations of an increase in interest rates.”  The figures are also up on the same period last year.

Fixed rates have been particularly popular with homeowners looking to remortgage.  With an estimated eight million households at risk from increased mortgage payments, borrowers have been turning to fixed rate remortgage deals to protect themselves against interest rate hikes.

Fixed rate contracts have a set interest rate for an initial period, and during this time, the monthly repayments will remain level and not increase regardless of what the Bank of England base rate is doing. Of course this offers financial security as borrowers will know exactly how much to budget every month.

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