An Interest Rate Rise Will Leave 3m People Struggling With Mortgage Repayments, What Can Be Done?

With millions of households in the UK on variable rate mortgages, the prospect of rising interest rates is a matter of concern to many. Whilst the Bank of England has kept interest rates at their record low of 0.5 per cent since early 2009, recent comments from the Governor, Mervyn King, have suggested that interest rates are set to rise sooner rather than later.

Many experts have serious concerns about mortgage affordability in the UK. The Financial Services Authority's guidelines for affordability state that 'a mortgage is affordable if its level and terms allow the consumer to meet current and future payment obligations in full, without recourse to further debt relief or rescheduling, avoiding accumulation of arrears while allowing an acceptable level of consumption'.

Statistics released by the Council of Mortgage Lenders (CML), a group representing nearly all of home loan lenders in the UK, shows that an increase in the cost of borrowing of 2% would result in 2.9 million homeowners struggling to pay their mortgages.

When rises in the general cost of living are taken into account - inflation hit 4.5 per cent in May 2011 - the outlook for many households looks gloomy. Rising petrol costs and home energy bills are already stretching household budgets very thin and so it's no surprise that many people have started to shop around for remortgage deals.

As more and more concerned homeowners realise the implications of falling into arrears, many look to remortgage on a fixed rate deal. However they have also begun to realise that due to the demand for such contracts, the interest rates and costs of fixed rate deals has increased and are not so cost effective any more.

London & Country's David Hollingworth said: "Heightened anticipation of a hike in interest rates has led to a rapid shift in fixed rate mortgage pricing. Lender after lender has moved to increase its rates, often on more than one occasion.

It seems that those who are looking to remortgage now have 'missed the boat' of low cost fixed interest deals, and will now have to pay above the odds to hedge against hikes in interest rates.

Recent data shows that the cost of the average five year fixed rate mortgage in the UK has increased by 0.33 per cent since January 2011. The average five year deal is now at 5.66 per cent, which, on a £150,000 interest only mortgage, represents a £41.25 hike in monthly repayment compared to January's best deals.

As the demand for remortgages increases, lenders look set to continue increasing the cost of fixed rate deals. CML figures showed that remortgage approvals increased by 16 per cent between February and March 2011.

If you're considering fixing your mortgage then it may be better to act sooner than later. A wise course of action is to speak to an independent mortgage broker who can scour the market to find the best fixed rate deals. With interest rates set to rise, however, it could be that fixed rates are also set to increase over the next few months.

About the Author:
Timothy Frodsham writes for JustRemortgages.com one of the UK's top sites for the latest remortgage rates and best remortgage deals.

Article Originally Published On: http://www.articlesnatch.com

Tags: Remortgage

, Remortgages

, Remortgage Rates

, Remortgage Deals

, Best Remortgage Deals

, debt

, mortgage arrears

, arrears

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