Homeowners across the UK have been dealt yet another blow after the Bank of England's announcement today (February 2). Earlier this afternoon the Bank revealed it was raising interest rates to 4 per cent, now the highest rate the UK has seen since the recession in 2008.
After a meeting which happens eight times a year, members of the Monetary Policy Committee voted at a majority of 7-2 to increase the base rate by 0.5 per cent, which is now the tenth consecutive rise seen in a row.
The decision was made in a bid to lower inflation to 2 per cent, but now millions of mortgage holders up and down the country are understandably concerned as this could have a direct impact on their mortgage repayments.
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Homeowners who are on variable rate mortgages, also known as a tracker mortgage, are most likely to see their monthly mortgage costs go up, which is a concern amid the already crippling cost of living crisis.
Concerned mortgage holders, and those whose fixed-rate deals are due to come to an end this year, are now questioning whether or not they should remortgage their house now as a way to get a cheaper rate and reduce their repayments.
Experts within the property and financial markets have now reacted to the Bank of England's interest rate rise and have given their say on whether it's a good idea to remortgage now or to wait.
Jonathan Samuels, CEO of specialist property lender Octane Capital advised: “Some 70 per cent of mortgage borrowers are on fixed rate deals and will be largely unaffected by Bank of England rate increases.
"However, some will be edging nearer to having to remortgage as their fixed product period comes to an end. For these homeowners they have two choices. One is to grin and bear moving to their high street lender’s variable rate, one that is higher today than at any time since 2008, or to lock in another fixed rate deal.
"Fixed rate deals have indeed become cheaper in recent months as wholesale money market costs have dropped but there may well be further to go in those reductions and so it’s a tough call between waiting things out or being tied to a new fixed rate that could well prove to be uncompetitive by spring”.
Myles Robinson, co-founder of Loan Corp, also gave his say on whether now is the right time to remortgage.
"The best time to remortgage is when you would end up in a better financial position as a result of that switch. There is not any point in changing mortgages just for the sake of it, especially during this uncertain time," Myles advised.
"We recommend remortgaging when; your fixed-rate deal is coming to an end, interest rates are on the rise and you're worried about missing out on a good deal, when you want to overpay and your lender won't allow you to do so, or if you've built up a lot of equity in your home.
"It is also important to remember that if you are looking to remortgage before the end of your current deal you will most likely have to pay an early repayment charge, so you should weigh up whether it is worth making that move."
Gary Smith, financial planning director at Evelyn Partners addressed that deciding whether to go for a fixed or variable rate mortgage is another 'difficult choice'.
“Households must be prepared for increased outgoings this year, and remortgaging to substantially higher rates will for many be a significant part of that," he said.
"Those who have deals expiring this year face a difficult choice as to whether to fix again or risk a variable rate deal. The former could mean locking in at a relatively high interest rate in order to achieve certainty. The latter could mean rising payments in the short term but possibly lower payments in the medium term as benchmark interest rates plateau or even start to come down.
“Certainly it seems that for those who desire some certainty over repayments, a two-year fix might make more sense so that if rates come down in the next year or two – as seems likely – they can step on to a better deal."
Gary added: “The danger is that those who are already paying a substantial proportion of their net income in mortgage costs will be stretched by the increased payments on their new deal, and therefore reduce monthly saving – whether that is cash, investment ISA or pension - or even eat into their savings. One tactic some will turn to is to negotiate a longer-term mortgage in excess of 25 year, and for many that could take repayments into retirement age for one or both of the borrowers.
“This can be a reasonable move either if there is a plan to overpay in future years before retirement, or if the borrowers are comfortable that they can continue to repay a mortgage after retiring without significantly impacting their living standard – in which case this outgoing must be factored into their financial plan for retirement. For some of course, alternatively, it could mean putting off retirement to a later date.”
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