Six months, the earlier the better

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Six months, the earlier the better

Close to 1.4 million fixed rate mortgage transactions will need refinancing to prevent homeowners from unknowingly jumping onto their lender’s high Standard Variable Rate (SVR) and consequently having to lay out for higher mortgage repayments in 2008.

As a result, homeowners seeking to re-mortgage are recommended to search for a new deal six months before their present fixed rate deal expires.

On the other hand, in a sad twist of events, mortgage products are disappearing; there are currently only 3,500 mortgage deals available on the market as compared to the high of 15,000 available, during the boom, just over a year ago.

A statement provided by the Bank of England cautions that the current mortgage crunch shall get painfully worse. This is due to the mortgage lenders’ revising their targets to avoid as much risk as possible. They seek to offer their mortgage deals only to those with a substantial amount of equity behind them as well as a good credit rating.

Senior technical manager at John Charcoal, Ray Boulger, warns homeowners to organise a mortgage deal six months before their dummy rate expires. This however greatly contradicts with how, just a couple of weeks ago, he was advising people to wait as rates were nose-diving.

He said that in the first half of this year as the force of the credit crunch caused conditions in the mortgage market to sour, they were advising clients to consult with them about re-mortgaging six months before their initial fixed rate period finished.

Furthermore, he explained that the rationale for making an early re-mortgage application had changed, particularly for borrowers who wanted a fixed rate due to the improved conditions in the mortgage market. Since July some fixed rates were falling in the hope of Bank of England Base Rate being cut quicker than formerly expected.

Mr. Boulger went on with the elaboration saying that with the greater freezing up of money currently being felt, there is a strong argument for acting sooner rather than later. Moreover, he said that with the London inter-bank offer rate fluctuating fiercely, mortgage lenders are unlikely to lower the tracker margins above bank rate they offer, but there are foreseen increments.

He added, with optimism, that there is a strong argument for moving fast once a mortgage deal had been secured; borrowers still end up reaping the full profits of the foreseen Bank Rate cuts. He said since lenders’ offers are generally valid for between three and six months periods, securing now for later is practical.

He further added that how to act on fixed rate remortgage deals was less straightforward, saying that anyone interested in remortgaging this year should delay when taking into account the instability in the market. Furthermore, he said that borrowers whose current deals end in more than four months may prefer to wait before applying for a fixed rate deal; this comment was based on the fact that a Bank of England Base Rate cut is widely expected this month or by November at the latest.

One other advantage for remortgage customers is depreciating property values. The more equity behind someone the lower the loan-to-value of the deal will be; if this is the case the lender will probably be willing to negotiate as this sort of deal would be seen as less of a risk for them. Conversely, at the same time, it is important to remembers that with the deteriorating property values, people’s equity is rapidly eroded also.

Mr. Boulger advised borrowers to consult with their brokers as soon as possible, particularly if they are close to the 90 percent barrier since anyone needing more than this percentage is unlikely to be able to remortgage in the near future.