Andrew Johnson, Associate Mortgage Consultant, shares his top tips for remortgaging in today’s market amid falling mortgage rates.
The decision by the Bank of England to hold the base rate for the third time in a row this week will have many homeowners coming the end of their current mortgage deal wondering what that means for their mortgage costs.
The good news is fixed rates are falling. Rates as low as 4.29% for a five-year fixed and 4.65% two-year fixed are available today. In addition, figures show the overall average two and five-year fixed rates fell between the start of November and the start of December to 6.04% and 5.65% respectively. This is the lowest they’ve been since June 2023, according to Moneyfacts.co.uk.
At the same time, however, the average standard variable rate (SVR) – which is the rate borrowers revert to once their current deal comes to an end – remains unchanged at an eye-watering 8.19%, the highest level since Moneyfacts started recording in July 2007.
The figures underline the importance of securing a new deal early if your existing mortgage is coming to an end. Andrew answers some of the frequently asked questions our clients have been asking in recent weeks.
- My current deal doesn’t end for another 6 months, what steps can I take today?
There’s a lot you can do in that time. Many lenders are now allowing borrowers to fix a deal up to 6 months in advance so contact a mortgage broker today and start the process. They will be able to assess your situation and lock in a deal that’s best for you. Doing this early has its advantages. If the mortgage market gets worse, you’ll have peace of mind that you’ve secured a good deal and if it gets better, you can ditch it and move to a better rate, so it hedges your risk.
- Is now a good time to fix or should I consider a variable rate?
Opting for a fixed or variable rate really depends on your individual circumstances and how much risk you’re willing to take. What you should be asking yourself instead is, ‘is this deal affordable for me?’. Variable rates obviously give you the flexibility to change should rates improve further down the line, but they are typically more expensive than two-year fixed rates. Variable rates are also linked to the Bank of England’s (BoE) base rate, which means if the base rate goes up or down then so does the variable rate. But don’t forget, the target for the BoE to lower its base rate is a 2% inflation mark and, currently, we’re not close to that. Significant improvements have been made in the last 12 months but we’re still just below 5% so I think we have a further 12-18 months before we see the BoE doing anything significant with interest rates.
- Should I stay with my lender or shop around?
Deciding to stick with your current lender or seek out a new deal elsewhere both have their advantages. It really depends on 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 not all lenders allow you to change the terms of your mortgage. For example, you might not 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 your existing deal is outside of that 3 to 4-month window, you may want to look at remortgaging with a different lender in the first instance. 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.
- Are there any considerations for older homeowners?
If you’re an older homeowner with any element of interest only, it’s important to think about what your mortgage exit strategy is. If you are yet to max out the term on your mortgage, your monthly repayments could be at risk of increasing, but there are ways to restructure deals to reduce these costs such as extending your mortgage term. Some lenders, for example, are willing to extend mortgage terms to the age of 80 depending on certain criteria. And if you’re using pension income to pay your mortgage, some lenders are able extend beyond 80 years old so long as you’re not using self-employed or earned income to pay your mortgage. While this isn’t ideal because you’d be paying more in interest overall, it would be more affordable on a monthly basis.
Talk to your broker as early as possible. Allow yourself plenty of time to make a decision because leaving this to the last minute will likely mean you’re making a rushed decision, which could very well be the wrong one. It could also mean you’re not fully aware of all the options available to you.
If you are looking to remortgage and would like to discuss your options, contact our remortgaging team. We have access to over 200 lenders, and can help find a cost-effective mortgage for you.