Home owners have short window of opportunity to remortgage

The possibility of a double dip in house prices, persistent inflation which could push up interest rates, plus the fact that mortgages are now more affordable than at any time in the past 35 years, combine to produce a window of opportunity for those who need to remortgage to do it now.

The Consumer Price Index measure of price rises may have fallen from 3.4% in May to 3.2% in June, but core inflation remains stubbornly high, rising from 2.9% to 3.1%, putting pressure on the Bank of England to raise interest rates.  CPI has now been above 3% for seven consecutive months and one member of the Bank's interest rate setting committee, Andrew Sentance, voted in June to increase the rate from 0.5% to 0.75% saying recently that the UK needed to consider higher rates.  That does not augur well for homebuyers.

Falling house prices

Meanwhile, the reports suggest home sellers are flooding the market and house prices are expected to fall.

For those who only recently crept back into having 15% equity in their properties – the proportion required to get a competitive remortgage -  it would be wise to remortgage now if you are paying an uncompetitive rate, before a second dip in house prices reduces your equity again.  If you believe accountants PricewaterhouseCoopers, which is predicting that house prices may not regain their 2007 peak until 2015, then the need to remortgage is even more pressing.

Mortgage limbo

More than 2.3 million borrowers, or 28% of homebuyers, are now on their lender’s Standard Variable Rate, most having simply moved across when their concessionary fixed or tracker deal came to an end.   Research from Yorkshire Building Society shows that around 75% of mortgage customers who have reverted to their lender’s SVR are eligible to remortgage should they wish to do so – in other words they have equity of at least 15% in their homes.  

YBS calculates that for every1% rise in house prices, 16,000 SVR mortgage customers are removed from mortgage limbo to qualify for a better deal.  YBS has produced a calculator so that homebuyers can check the amount they could save with the ‘3 Minute Mortgage Check’ at

Tracker or fixed rate?

So what should you go for given that there is increasing pressure on the Bank of England to raise interest rates – a low cost tracker or a fixed rate?    ‘Two year fixed rates offer little value but the gap between the rates payable on a five or 10 year fixed rate and the initial rate on a tracker mortgage has narrowed since the election, as the markets have reassessed the medium to long term outlook for interest rates,’ says Ray Boulger of mortgage broker John Charcol. ‘ In general, lifetime trackers still offer better value for the time being, based on our expectation that interest rates will only rise slowly, but at current pricing the best five to 10 year fixed rates are now a viable proposition for those who want, or need, interest rate security.’

Mix and match

Co-op Bank is offering borrowers the option to ‘mix and match,’ fixing part of the loan and having the rest on a tracker, for a single arrangement fee. All Co-op Bank mortgages are available to combine, although you must have enough equity to qualify for the maximum loan to value on each product. Customers can mix and match products for different periods of time.  For example, a three year tracker product and a five year fixed product could be combined. The application fee charged on combined mix and match products will be the highest fee of both the chosen loans.