CALLING ALL BORROWERS – is it time to remortgage?

With mortgage rates so low at the moment, it seems like a no brainer for borrowers to explore if they are getting the best deal on their home loan.

The idea of reducing mortgage payments seems even more attractive while prices for everything else seem to be rising, whether that’s energy bills or your weekly food shop.

Rates on mortgages remain extremely competitive with two and five-year rates available under 1%.

Borrowers have been taking advantage of record low rates in their droves. The latest figures show remortgage approvals in the summer grew to their highest level since last March[1].

Since a mortgage is likely to be your largest monthly outgoing, it’s crucial to get the best deal possible to ensure you don’t pay more interest than you need to.

The golden rule is not to slip onto your lender’s standard variable rate (SVR) when your existing deal comes to an end. The average SVR today is around 4.4%.[2]

Fixed rate mortgages remain popular as they allow you to lock into a rate for a number of years, bringing peace of mind that your monthly repayments won’t rise during that time.

If you are worried about interest rates rising and you’re on a variable rate, you might want to switch to a fixed-rate loan to buy certainty over repayments.

While interest rates have been a record low of 0.1%, last month the Bank of England cautioned it may soon raise the base rate to combat rising inflation, which jumped to a nine-year high in August [3], not helped by soaring energy prices.

A rise in interest rates usually feeds through to mortgage rates.

The cheapest mortgages today are still reserved for those with the largest deposits, as they pose a smaller “risk” than those with only smaller sums. Yet savings could still be made for those with much smaller deposits.

It’s not just those coming to the end of their existing deal who might want to remortgage. Homeowners with a substantial amount of equity in their home might want to release some money – perhaps to fund a renovations or perhaps to help younger family members get on the property ladder. This works by taking out a new mortgage that is larger than your existing mortgage.

Or you want to remortgage to overpay by more than your lender will allow. If you have come into some money perhaps with a large bonus from work or an inheritance, you might be keen to pay off a chunk of your mortgage to save on interest payments and fast-track being mortgage-free. Most mortgages come with a limit on the amount by which you can overpay. Remortgaging is one way to pay down the loan and get a better rate.

Finding the best deal

Now is a very good time to check if it’s possible to secure a good rate. Lender competition is fierce, which has helped drive mortgage rates down over the last 12 months.

But it’s important to find the right mortgage – and not simply go for the cheapest rate. That’s because there are other things to factor in such as the arrangement fee and valuation and legal costs. It might be cheaper to go for a loan that carries a slightly higher rate if the fee is far cheaper than the loan with the lowest rate.

It’s also important to explore what’s on offer from all lenders in the market which is where a good mortgage adviser can be helpful.

Your adviser will look for the best mortgage for you and they can give you access to far more products than if you went direct to a lender. They also have access to exclusive deals not available to borrowers who don’t have a broker.

A mortgage adviser deals with lenders on a day-to-day basis which means they will know what the application process is like for each one and which lender can process things with minimal delays.

It can be more difficult for certain groups such as self-employed workers to get a mortgage. An adviser can help by approaching the more flexible lenders for your circumstances.

Some mortgage offers are valid for up to six months so even if your existing deal doesn’t expire until 2022, you can still secure a low rate now. It may even work out cheaper if you end your current deal early and have to pay early repayment charges.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Source:

[1] Bank of England Money and Credit report – August 2021

[2] https://www.mortgagefinancegazette.com/uncategorised/low-rates-make-for-prime-time-to-consider-a-new-mortgage-moneyfacts-03-08-2021/ 

[3] https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/august2021