Two out of three re-mortgagers will be cutting back this Christmas to help meet increased mortgage repayments and a further 71 per cent expect to see a rise in their monthly mortgage repayments when their current deal expires.
How you can benefit
Experts are predicting further cuts to the base rate will take place in the New Year, but many homeowners re-mortgaging now will lose out if they choose the wrong product.
According to Lloyds TSB, a third of homeowners are ruling themselves out of benefiting from future potential interest rate falls as they refuse to consider a tracker for their next mortgage deal.
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In a survey of 1,000 homeowners due to remortgage before the end of year, over 60 per cent believe interest rates will drop further in the coming months. Despite this expectation, one in five is not prepared to trust their instinct for fear of being caught out by another rate rise.
Alison Burns, director of network mortgage sales, Lloyds TSB, said: Having witnessed five rate rises in two years, its not surprising some consumers are reticent to take a gamble on rates not rising again. Currently just 15 per cent of homeowners have a tracker mortgage but as thousands face increased monthly repayments they need to consider all the remortgaging options available. By ruling out a tracker homeowners are missing out on the opportunity to capitalise on future rate drops.
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What to do next
The MPC may have cut the base rate by 0.25 per cent today, but the industry expects tougher times lie ahead for homeowners.
Brian Murphy, Head of Lending at Mortgage Advice Bureau, said: “There has been a considerable slowdown in the housing market over the past few months and this is further reflected by the recently reported decrease in the number of mortgage approvals. This slowdown has almost been too dramatic and a base rate decrease is long overdue. I expect there will be more to come during early 2008.
The rate decrease should restore some much needed consumer confidence ahead of the Christmas period and will benefit mortgage borrowers particularly those on tracker rate deals.
“However I would imagine this one rate cut will not encourage too many people looking to step onto the property ladder to enter the market just yet as with recently reported house prices falls many would be buyers will want to see where the market settles before committing themselves.”
Despite the cut in rates today most lenders would be unlikely to pass it on in full to mortgage borrowers, but there are some steps to take to make sure you get the best deal now.
Can you trust a tracker?
It is widely expected that this cut in interest rates will not be the last, so for many homeowners due to remortgage now might be a good time to take out a tracker mortgage. The rate you pay is at a set margin above the base rate and moves up and down as the rate changes.
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This can be appealing because you know that when the rate is reduced, your monthly payments will go down. On the flipside, when interest rates are rising you can be sure the monthly cost of your mortgage will also go up.
Although some tracker mortgages have caps, so you know the cost wont rise above a certain level.
If you’re paying your lender’s Standard Variable Rate (SVR), switch!
If your mortgage deal has run out, you will no doubt be currently paying your lender’s SVR.
As one of the most expensive ways to borrow, you must start looking for a cheap deal immediately and remortgage!
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If you don’t like surprises, fix.
The most obvious solution to avoid the pressure of interest rates is to opt for a fixed rate mortgage. This way, youll know how much youll be paying for a set amount of time.
With interest rates being unpredictable of late, opting for a fixed rate mortgage has become the norm. However, industry experts are hinting of possible cuts in the base rate in the 2008 and if rates do fall you wont benefit.
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