Despite the Bank of England leaving the standard base interest rate at the historically low level of 0.5% for months on end during the recession and not expecting to increase it until next year, borrowers should not expect banks to leave their rates low and cheap.  Cheap remortgage and mortgage deals are likely to start creeping upward as lenders deal with the strong demand for mortgage lending.  Banks do not have an unending resource of money to lend and must be able to extend lending at a reasonable level that will allow them to handle economic stresses.

Just as borrowers are due to be tested now on a stress test as to their ability to handle increases in interest rates on any mortgage or remortgage they are seeking, banks are due to be put through a tougher stress test as well.  The Bank of England’s Prudential Regulation Authority (PRA) is set to test eight major British Banks and building societies with a stress test to see how they can handle market fluctuations and namely major fluctuations.

The Bank of England confirmed in a statement as to the inquiry, stating, “If a firm's capital ratio is projected to fall below the 4.5% core equity Tier 1 ratio in the stress, there is a strong presumption that the PRA will require the firm to take action to strengthen its capital position.”

This means the lender will have to demonstrate they have enough cash assets set aside as a buffer in the event there is a rate hike or market crash.  This would eliminate another bailout or rescue situation by taxpayers.

The European Union has announced that all banks will be facing tougher stress tests with deepened hypothetical economic turmoil put into the test to determine stability in the event there is a market crash or problematic economic situation.

Homeowners seeking a remortgage and hopeful home buyers should be put on alert that this could mean that interest rates may be increasing sooner rather than later as the housing market gains strength and the state of the economy continues to improve.