August 21st, 2014
Figures released by the Council of Mortgage Lenders (CML) have shown that remortgage activity increased in June.
The trend is set to continue due to the expectation of homeowners returning to the market to improve on their existing deal before interest rates rise.
There are continual hints from the government that rates are almost at breaking point, and homeowners are worried over the impact on their household finances.
Minutes of the latest meeting of the Bank of England’s Monetary Policy Committee has revealed that two members, Ian McCafferty and Martin Weale, voted to increase the Base Rate by 0.25%.
Market experts had suggested that, with UK inflation also this month falling sharply to 1.6%, a base rate rise was very unlikely this year. The government expectation for the Consumer Prices Index (CPI) was for it to remain at 1.9%; however one industry insider believes otherwise:
“In general terms, this week’s inflation figures would suggest a rate increase later rather than sooner,” says Taj Kang of specialist mortgage broker Contractor Mortgages Made Easy.
“However, regardless of whether rates increase in February of next year or before; it is undoubtedly prudent to begin planning ahead for mortgage spending now, as lenders may try to second guess the MPC by increasing rates ahead of the Bank of England.”
“CPI has now been below the government target of 2% for eight months, which is good news. The fear however is that with unemployment levels dropping, wages will increase which will then turn the screw on inflation, leaving us back at square one, and with mortgage rates on offer markedly higher than they are at present.”
Further complications still having an effect as a result of the Financial Conduct Authority's Mortgage Market Review (MMR), could leave borrowers with a sense of fear of being unable to refinance, adds Taj.
“One of the biggest knock on effects of MMR was lender stress testing, in which they will calculate affordability for a mortgage based on future rate increases, rather than the actual product you apply for.”
“As we get closer to a real-time rate increase, these follow on rates will be adjusted accordingly, meaning that even though nothing has changed on your application, a mortgage that was deemed affordable last month might now be declined.”
Taj does however have some prudent advice for Contractors who fear that it could become difficult to become home owners.
“The best way of ensuring that your mortgage is approved is to make sure that you are utilising all of your income. In order to do this, you need to ensure that the application is presented in the correct way."
Article By: Mark McBurney, Senior Mortgage Consultant at Contractor Mortgages Made Easy
Media Contact: Raman Kaur, Public Relations Manager
Tel: 01489 555 080