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When I worked as a mortgage broker, I made a substantial portion of my income from remortgaging my clients properties, mostly just helping out those rate tarts that wanted a cheaper deal for the next 2,3 or 5 years, but sometimes I would do a remortgage as part of a debt-restructuring exercise, rolling up much more expensive loans and credit cards into a cheaper rate on the new mortgage.

Now when the base rate was between for instance 5%, this pretty much always made sense, as the reversionary rate on my clients’ mortgages was usually between 1.75% and 2.25% over base, so best case 6.75% would be the standard variable rate, which I would always be able to beat, even when all costs were taken into account.

Nowadays, things are slightly different thanks to the credit crunch and the Bank of England’s decisions over the past nine months to reduce the base rate to 0.5% and maintain this unprecedented low level for the last three months.

Any mortgage holder now just about to come off a fixed rate deal will be rubbing their hands with glee at the though of potentially paying as little as 2.25% on their mortgage, assuming a similar margin over base from earlier.

It really doesn’t make much sense to consider swapping your mortgage to a new fixed rate deal when you will save considerably more money on your mortgage by simply sticking with the standard variable rate, or am I missing something? It strikes me that fixed rates should have come down significantly over the last six months, but they still seem to be hovering around the 4-5% mark. If you could find a three or five year deal at around 3%, then it would make sense to remortgage onto that, such that when the base rate does start to rise, you will have locked in cheap money for 3-5 years.

Clearly, this all hinges on the Bank of England and what they decide to do with the base rate, though, as I wrote in an article earlier in the week, it seems that at least one big high street bank thinks that the base rate won’t rise until late 2010.

I’m in the lucky position that my mortgage reverted to SVR just as the Bank of England started drastically reducing the base rate late in 2008, such that I’m paying about £600 less each month than I thought I would be once the mortgage had reverted to SVR, which saved me needing to remortgage. Although, with everything that has happened in the last year, the lesson I’ve learnt is that our society is so burdoned with debt that even if you stuck on a variable rate mortgage and didn’t go shopping around for a good fixed rate deal every 2-3 years, you will be better off.

The reason for this is simple – too many people with too much debt will stop the Bank of England from raising rates too high, most likely by causing another credit crunch / recession just as it looks like inflation requires a period of sustained high interest rates.

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