House prices are falling again and predictions are that interest rates will soon rise, leaving some home owners feeling as if they are about to walk a tightrope.
Last week, for the 19th consecutive month, the Bank of England did not increase the base rate but this situation cannot continue indefinitely. In fact, now that the recovery is underway, some experts are already calling for an increase.
Ernst & Young has predicted that the current rate could remain unchanged for up to 5 years; whereas the Policy Exchange predicts that the Bank Rate could increase to 8% within 2 years.
The difference in these 2 predictions must leave mortgage hunters completely bemused. Who do you believe, which avenue do you go down if you’re looking for a contractor mortgage or a remortgage?
The Council of Mortgage Lenders recently informed us that up to 3 million homeowners would be unable to meet their repayments if interest rates rose by 2%. Add to that the pre-Christmas slowdown in the housing market and further price falls and things don’t look too promising.
One of the directors at Savills, Mark Harris, believes that now is the time for homeowners to reassess their options. There are plenty of deals on the market at the moment, especially for people looking for a 5 year mortgage, he points out. Another advisor, Melanie Bien from Private Finance, said that people who have a standard variable rate product charging more than 2.5% should be looking into remortgage options.
Doing nothing now could indeed prove to be an expensive error of judgment. As Harris points out, if prices continue to fall you could end up with less home equity than you need to secure a competitive deal.
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