UK base rate hikes drive investors to Europe

The five increases in the Bank of England base rate that have occurred since August 2006 have been dominating financial headlines for months, and it seems that it's homeowners that have been hit the hardest. As interest rates force up mortgage repayments, many people have found it harder and harder to plan their monthly financial outgoings in advance. As a result of this unpredictability in the financial market, many UK property investors are turning to Europe to take advantage of cheaper Euro mortgages.

A recent study conducted by Assetz, who specialise in property investment advice, has found that there has been a 30 percent increase in the demand for re-mortgages on overseas property since the UK base rate rise in May. And following last week's increase, it's likely that this trend will accelerate throughout the summer.

European base rates have been consistently lower than its UK counterpart for some time, with the European Central Bank maintaining rates at 4 percent. Over the past few decades, many UK residents have invested in holiday homes in Europe and now many of these homeowners are looking to remortgage their European property with the intention of using the released cash to pay off all or some of their UK mortgage. Moreover, holiday homes that were bought many years ago will have been bought with savings, at a time when overseas finance was less freely available to foreign buyers.

Katy Hepworth, overseas mortgage manager of Assetz Finance, commented:

"Investors should be aware that now is the prime time to re-mortgage in Europe. Base rates are still considerably lower than in the UK so by re-evaluating their borrowing, investors can potentially make big savings. However, a rise in the European base rates is expected in September, so even though rates will still remain much lower than at home, investors should act now to secure the best deals."

While people holding current UK mortgages are likely to see their repayments significantly affected by the base rate hikes, it seems that the increases have had their desired effect on house price inflation in Britain.

The latest survey from the Communities and Local Government department (DCLG) has shown that UK house prices in May 2007 rose 10.9% on an annual basis - a figure that was down from April's 11.3% but on a level with that of January this year. As a result, many have considered UK house price inflation to have reached a plateau - news that many potential property buyers will undoubtedly greet with joy, although the prospect of such high mortgage repayments may well cancel out such feelings.

Matthew Pressman is a freelance writer and keen horseman. He lives in Bristol, UK.

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