Remortgage now, ahead of the rate rises

When it comes to home loans the only way is up, so don't delay if you're looking for a better deal
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The Independent Online

Mark Dyason, director of independent UK mortgage broker, Edinburgh Mortgage Advice, insists that "interest rates can only rise". This may answer the prayers of Britain's hard-pressed savers, but for people who want to remortgage or those with an existing deal nearly at an end, any talk of rates rising is a red alert.

But why are rates going in only one direction – up? Well, Mr Dyason is only voicing a truism. Bank of England (BoE) interest rates are at 0.5 per cent and that's about as low as they have ever been, ergo they will rise at some point.

Mark Carney, the Bank's Governor, has set a notional target of seeing an uptick in rates once unemployment falls below the psychologically important 7 per cent mark. Although Mr Carney denies a direct correlation between rising rates and jobless numbers, but most BoE watchers reckon this equates to a rise in base rate coming in 2016 or perhaps a little earlier.

However, the biggest determinate on the actual interest rate that people pay on their home loans or receive for their savings has been the ready availability of cash in the banking system. The more cash is available the lower the rates offered.

But with house prices beginning to take off, the BoE has now decided to redirect it's £80bn pump-priming programme away from financing mortgages to business loans, which will may mean higher mortgage rates sooner than 2016.

"With the Funding for Lending Scheme (FLS) being withdrawn, and the economy improving, we've almost certainly hit the bottom from a rate perspective. So if you want to get one of the best fixed deals that will ever be made available, you need to act," says Ashley Brown, director of independent mortgage broker, Moneysprite. "Everyone just looks at the Bank of England headline rate and thinks that this dictates things. Right now the withdrawal of FLS is much more significant."

Already many of the very best mortgage rate deals are being withdrawn. If rates start to tick up then there is the chance – even now in an improving economy – of a rise in arrears and repossessions, according to director of Legal & General Network, Jeremy Duncombe. "With interest rates likely to rise in the short to medium term it's important that borrowers prepare financially for what could be an interest rate shock.

"Unfortunately there is a chance that as rates rise, arrears and repossessions could rise alongside... it may be wise for borrowers to seek advice and consider remortgaging to secure a better deal for themselves while rates remain at historic lows."

But which remortgage deal is best? Much depends on having a good credit rating and how much equity there is in the property; to access the best rates it would help to have at least 25 per cent equity, or in the case of a new buyer, a deposit equivalent to the same percentage.

Assuming these are in place, most mortgage-market watchers are edging borrowers towards medium to long-term fixed rate deals.

Mr Dyason says fixing is "a fantastic choice" but warns that a new tranche of regulation about to hit the industry may scupper some attempts to remortgage.

"It will become more difficult to secure a mortgage next year as a result of these changes," he says.

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