Since the financial crisis in the UK, the Bank of England base rate has remained at its all time low of just half a percent.  However earlier in 2011, the Monetary Policy Committee of the Bank of England confirmed that although they had voted against an increase at the time, an increase later in 2011 was inevitable. The Governor spoke out and said that it was impossible for rates to stay so low if we are to see the economy of our country recover.

The Bank of England’s Monetary Policy Committee (MPC) was set to raise interest rates in February 2011 before worse than expected growth figures forced them to keep interest rates on hold.

What Does This Mean for Mortgage Borrowers? For anyone with a tracker or discounted variable rate mortgage, possible increases in interest rates are a worry.  Whilst variable rates are controlled by mortgage lenders, they are normally increased as and when the Bank of England increases the Base rate.  So, changes to the Base rate are likely to result in higher variable rate mortgages.

If the interest rate was to increase, borrowers would see their own interest rates increase which would in turn mean higher monthly repayments to their mortgage lender. Of course, many families are already on a tight budget, so an increase in mortgage repayments could see them in a difficult position financially.

An increase in the base rate of just half a percent to one percent would mean that the average family would pay almost an additional £50 per month in mortgage repayments. This coupled with the constantly rising daily living costs and prices could send many to their financial ‘tipping point’, whereby they struggle to afford their living costs.

And, an increase in interest rates is not a problem that will only affect a minority of borrowers. It is estimated that somewhere in the region of two thirds of UK homeowners have variable rate mortgages and so it is not surprising that more and more people are starting to look for remortgage deals to ensure their mortgage repayments remain affordable.

Figures Show Many Now Remortgaging to Hedge Against Interest Rate Hikes: An organisation called the Council of Mortgage Lenders, who represent almost all mortgage lenders in Britain confirmed that remortgage figures had increased by almost a fifth in the first quarter of this year following the announcements by the Bank of England.

A statement issued by the CML said: “The huge rise in remortgage activity is likely to be linked to the expectations of an increase in interest rates.”  The figures are also up on the same period last year.

It is believed that the predicted eight million mortgage customers who have a variable rate product are now hoping to avoid the unpredictable fluctuating market by accessing remortgage deals , particularly fixed rate mortgages.

Fixed rate contracts have a set interest rate for an initial period, and during this time, the monthly repayments will remain level and not increase regardless of what the Bank of England base rate is doing. Of course this offers financial security as borrowers will know exactly how much to budget every month.