The light at the end of the tunnel turns out to be a Lehman Brothers shaped train.
Hands up if, like me, you've been watching the mortgage rates and waiting - looking for signs that rates are starting to drop as the re-mortgage clock ticks.
For a while it looked like things would turn out OK for anyone looking for a mortgage deal starting some time over the next three to six months. Rates had started to fall back from the highs of the summer, when average two year fixed rates stood at an eye–watering seven per cent, or more.
Seemingly in anticipation of Bank of England rate cuts and optimistic that the worst of the credit crunch was over, some of the UK's biggest lenders made big cuts to their mortgage rates, which sent the average fixed rate deal back down to 6.39% - precisely where it had been before the credit crunch kicked off in earnest.
That news might have brought cautious sighs of relief up and down the country, but it was tempered by the accompanying hikes in arrangement fees which, in many cases, all but obliterated any gain from lower rates. For example, the best two year fixed deal at the time was a tasty 4.89%, but the sour aftertaste was a 2.5% arrangement fee - on a £200,000 mortgage, that adds up to a £5000 fee. Ouch.
Still, it did seem there were deals to be had (as long as you're not a first time buyer or have a deposit of less than 10%), and the hope was that it was the start of a more prolonged downward trend. In fact most brokers were still advocating a wait and see approach, anticipating further cuts once the MPC did start to move the base rate down.
Hindsight is always 20/20 of course, but those Bank of England rate cuts have still failed to materialise. The MPC is continuing its obsession with inflation and refusing to budge on rates until the consumer price index hits its peak at the very least. Not surprisingly then, they kept rates at 5% in September, despite growing pressure for a cut.
At the time, the fact that the vote was split only between the status quo and a cut, with no-one voting for a rise for the first time in months, still gave cause for optimism that a drop in the base rate remained imminent – certainly before the end of the year.
Any light at the end of the tunnel was quickly extinguished however, with news of the collapse of Lehman Brothers and the firestorm at HBOS. First of all the Libor (the rate at which banks lend to each other) shot up again and, given that it is a key influence on mortgage rates, that was bad news. Secondly, the hastily arranged takeover of HBOS by Lloyds TSB may help to stabilise the bank (though we'll see what happens to Lloyds over the coming weeks and months), but it also strips significant choice out of the market – thereby reducing the pressure on lenders to introduce competitive rates.
The effect was almost instantaneous as the international money markets ground to a halt. It quickly became clear that mortgage rates would begin to rise once more as the cost of financing credit soared once again. Predictions of rate rises of at least 0.25% swiftly followed, accompanied by urgent advice to 'fix now' before the rates go up. It seems a lot of people followed that advice, ignoring outrageous arrangement fees to snap up lower rates – presumably adding fees to the loan (and undoing months of mortgage payments in the process).
So what now? Looking for a remortgage has become a bit like trying to jump off a rollercoaster in the dark. It might feel like a big dip is coming and the time to step into the unknown is just around the corner, but then along comes a loop the loop and confusion reigns once again.
Well, if you have a decent deposit or chunk of equity (at least 30%) there are still deals to be had if you are prepared to swallow the fees - for the risk averse, securing a deal now could be a good idea, but move quickly. It could remain valid for six months, though any booking fee would be non-refundable if the rates were to go south in the meantime.
On the other hand, most experts are predicting that base rates will fall back to 4% over the next year and, who knows, the money markets might settle again sooner rather than later. A slightly higher risk approach then would be to continue to wait and see - but make sure you are keeping a close eye on the market.
A middle ground, particularly for anyone who needs to remortgage now, would be to go for a tracker for the time being, but make sure it has the flexibility to fix rates once they start to go down over the next twelve months.
Personally I'm going to sit tight for a while yet, in the hope that the MPC will bow to pressure for a rate cut sooner rather than later. But then I've still got six months grace in which to cross my fingers and hope for the best...
