RLA : RPI : Remortgaging likely on back of interest rate hike

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other artilces from the June / July 04 issue

Remortgaging likely on back of interest rate hike - June / July 2004

'Unexpectedly strong house price inflation' was cited as one of the reasons for a 0.25 per cent rise in interest rates announced by the Bank of England's Monetary Policy Committee last month. 'Robust' retail spending 'underpinned' by income growth and improved investment prospects were others. The rise to 4.25 per cent was despite current inflation of only 2 per cent. Nevertheless the committee judged the increase was needed to keep inflation on track to meet the target in the medium term.

The previous change in interest rates was an increase of 0.25 per cent in February.

Caroline Havers: 'Vibrant market'

Jim Buckle, managing director of property website assertahome.com, commented: 'Householders are paying ever increasing multiples of their income to secure their desired home according to our latest housing market confidence survey. Aggressive interest rate increases will hit these newer homeowners hard and risk tipping the market into a downturn.

'Those in London and the South East are paying multiples well above the national average and are most exposed. And if the market is hit hard in London, past experience shows that the rest of the country follows'.

However, others were more optimistic. 'Whenever the Bank of England puts up rates inevitably a sense of uncertainty is created. However, we have been saying from the start of the year that rates were likely to climb to around 4.75 per cent by the end of 2004', said Peter Bolton King, chief executive of the National Association of Estate Agents.

'That in itself will not damage the housing market because we know affordability is healthy in historic terms. The last quarter point hike did not affect the market one jot and we don't believe this rise will have any material effect except perhaps on first time buyers who will be further overstretched'.

Caroline Havers, a remortgage specialist from Salans, said the law firm believed that the rate change would have 'a positive effect on the already vibrant remortgage market'. She said new buyers would not be among the hardest hit since they can enjoy generous upfront mortgage discounts.

'With today's increase (and the threat of more to come) as well as the ever increasing variety of competitive deals on offer, we believe that many more are likely to seriously consider remortgaging for a better deal', she said.

Peter Brodnicki, chief executive of the Mortgage Advice Bureau, said 'borrowers have been expecting rates to rise this year as surely as they expect the sun to rise tomorrow, and have budgeted for it. Rates remain historically low, and mortgage repayments still well within normal affordability levels. Therefore we do not anticipate any major changes to either levels of activity in the mortgage market or house prices'.

Buy-to-let investors should consider switching their tracker or discounted rate mortgages to fixed rate products, suggested investment mortgage broker, Mortgages for Business.

'Despite tracker and discounted rates continuing to appear attractive at present, many commentators are predicting further increases in interest rates and a continued upturn which would return base rates to in excess of 5.5 per cent over the next 18 months', it suggested.

other artilces from the June / July 2004 issue

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