With the cost of borrowing on the rise, many homeowners are growing increasingly concerned about how this will impact their mortgage costs in the months ahead, but there are actions you can take to lock in a competitive rate and manage your monthly payments.
In June, the Bank of England increased the base rate for the fifth time in a row to 1.25%, as it warned of inflation rising to 11% amid soaring household energy bills. Lenders have responded by pulling their cheaper mortgage products, removing sub 2% deals from the market with further volatility expected.
For homeowners looking to weather the storm, it could be beneficial to carry out a mortgage ‘MOT’ with the help of a broker. Whether you’re on a tracker or variable rate, an interest-only or fixed-rate mortgage, assessing your current situation now could help you lock in a competitive deal over the long-term and avoid any unnecessary stress. Read on for our top tips if you’re looking to remortgage in the coming months.
What are the advantages of remortgaging?
The biggest advantage of remortgaging is the ability to save money by switching to a new arrangement and, in the case of a fixed-rate deal, locking in a guaranteed rate for a period of time.
If you have a fixed rate mortgage currently, you will automatically roll on to the lender’s default tariff when your fixed rate period comes to an end – known as the standard variable rate – which is linked to the Bank of England’s base rate and means you will likely be paying more than you were before, particularly in the current market context.
By speaking to a broker early, you can avoid this and feel reassured that you’re picking the right product for your circumstances, whether that’s a new fixed rate or another type of mortgage. For example, a tracker rate mortgage should still be cheaper than your standard variable rate tariff, even with interest rates rising.
Remortgaging can also enable you to free up equity or borrow more, if you need to. For example, more landlords are remortgaging to release capital for energy efficiency upgrades to their properties, ahead of new legislation coming in 2025-26 that means rental properties will have to legally have an energy efficiency rating of band C or above.
Should I stay with my existing lender or find a new one?
Deciding to stick with your current lender or seek out a new deal elsewhere both have their advantages. It really depends on your circumstances and what works for you.
If you’re within 3 to 4 months of your existing deal coming to an end and plan to stay with the same lender, you can opt for what’s called a product switch. This is quick, easy and requires no documentation or lengthy affordability checks. Your current lender will simply move you to the new rate once your existing one finishes. This is a good option if you’ve left it late or you’re self-employed and are struggling to collate all the necessary documentation required by a new lender, such as tax returns.
One issue with a product switch, however, is you can’t change the terms of your mortgage. For example, you wouldn’t be able to extend your term from 25 to 30 years or change the structure of the loan to include interest-only repayments. So, if this was a priority, you might want to consider agreeing new terms with a different lender.
If the end date on your existing deal is outside of a 3 to 4-month window, you may want to explore remortgaging with a different lender in the first instance. The major benefit here being that any mortgage offer with a new lender would be valid for 6 months, so this enables you to lock in an interest rate for a period of time, giving you peace of mind. Meanwhile, your mortgage broker will review the options available with your current lender closer to the time of your current mortgage expiry. If they prove to be more competitive and cost effective, your broker can help you arrange a product transfer instead.
What’s happening with interest rates? Can I still get a good deal?
Sub 2% rates may have disappeared but there are still good deals out there, which is why it’s so important to talk to a broker as soon as possible to make sure you don’t miss out. At the time of writing, we are seeing rates just above 3% for a five-year fixed rate. Click here to see an illustrative example.
It is also possible to secure preferential rates if you stay with your current lender, but that will depend on the bank.
Is now a good time to fix?
With the current volatility in the market, a fixed-rate mortgage is appealing to an increasing number of homeowners. Whether that’s, 2, 5, 7 or 10 years really depends on your circumstances and how long you feel comfortable with fixing for.
Remember, if you plan to move home within your fixed term period, some products enable you to transfer – or ‘port’ – your mortgage to your new home. Bear in mind, however, if you need to sell your property or pay off your mortgage, you could be subject to penalties often known as ERCs or early repayment charges.
What do I need to do before remortgaging?
Get planning early. If you’re six months away from your deal coming to an end, then you should really speak to a broker as soon as possible to lock in the best possible deal. The market is very fluid at the moment and a product that’s available today may not be tomorrow. Even if you’re outside of this window, it’s still worth being prepared and having the conversation to assess what options could work for you.
It’s also worth reviewing how much you can borrow based on your earnings and the existing equity in your property, and make sure to look over your current agreement for any early repayment or exit charges. If you’re remortgaging with a new lender, then it’s a good idea to get your credit file in order too, along with any necessary documentation such as proof of earnings.
If you are looking to remortgage this year and would like to discuss your options, get in touch with our expert remortgaging team who would be happy to help. We have access to over 200 lenders, and can help find the most suitable and cost-effective mortgage for you.