At SPF we have not seen anything like the increase in Remortgage activity that the wider market has seen. Given our client demographic we are not surprised by this and frankly we expected it given recent commentary in the market from the rate-setters, examples are as follows;
1. The MPC expects that inflation could hit a 5% high before falling back to target in the medium term. Furthermore, they have commented that they would generally expect Interest Rates to rise in line with market expectations in order to achieve target.
2. The Bank of England Governor has stated that a raising of rates to combat imported inflation would be futile and only serve to risk the economic recovery.
3. the Governor is also on record as having confirmed that the Bank would do everything in its power to keep monetary policy loose to aid the recovery and would only be forced to act if they saw domestic inflation or inflation in wage settlements.
Cutting through the media rhetoric, inflation is indeed above target but stripping out the VAT increase and the imported inflation within higher fuel and commodity prices then inflation is much closer to target than it appears. The economic recovery is very fragile as evidenced by a fall in GDP for the last quarter of 2010, there is no evidence of wages outstripping inflation and market Interest Rate expectations is for Base Rate at 2.25% by the Spring of 2014. Taking these facts on balance, we see the recent increase in Remortgage activity as nothing more than an over-reaction to Interest Rate speculation in the media as opposed to a recovery in the lending market per se.
SPF's view is that it is still too early to go hunting for a fixed rate deal and we are not convinced that we'll see a Base Rate increase during 2011. As ever, if you require the surety of knowing what your payments are going to be or cannot afford to call the market incorrectly then you should think about fixing your mortgage payments during 2011.