Is Now a Good Time to Remortgage?
With the recent rise in interest rates and the cost of living crisis in full swing, you may be wondering if now is a good time to remortgage.
The truth is that rising interest rates are a concern for anyone with a mortgage and you may be worried about locking into a new deal when rates are high and miss out if they drop in the future.
We examine whether now is a good time to remortgage and how to get the best deal possible if you decide to remortgage.
Remortgaging in the Current Economic Climate
There are three factors that are currently affecting mortgages in the UK.
- The cost-of-living crisis has begun to squeeze household budgets and people are finding it harder to make mortgage payments that would ordinarily be affordable.
- Inflation is at a record high and to curb it, the Bank of England has introduced base rate rises.
- Lenders have increased the cost to borrow money – which they pass on to customers by way of interest rate rises.
Fixed Rate Mortgages
If you have a fixed rate mortgage, this is the best possible scenario as far as budgeting is concerned. If your fixed rate is ending in the next few months, it is worth looking at remortgage deals now.
Tracker Rate Mortgages
If you have a tracker rate mortgage that follows the Bank of England base rate you may be increasingly concerned about future rate rises which will push the monthly cost of your mortgage up.
If your deal has a lengthy term left on it, your anxiety about rising costs may be even more pronounced. You should check how much the Early Repayment Charge (ERC) is on your mortgage and then calculate the cost of your mortgage with expected rate rises.
If your ERC is less than the cost of paying for the mortgage with expected rate rises, it is worth discussing your situation with a whole-of-market mortgage broker, like Boon Brokers.
Standard Variable Rate Mortgages
If your mortgage deal has ended, you will have a variable rate which can change regularly at the lender’s discretion.
Standard variable rates are almost always the most non competitive rates in the market and it is advisable to discuss your mortgage with a professional mortgage broker to see if remortgaging onto a mortgage deal is possible.
What Does Remortgaging Involve?
Remortgaging is similar to your initial mortgage process except there are areas where it is streamlined. For example, your property has already been deemed suitable for mortgage purposes, so lenders are less likely to require detailed property checks.
A mortgage broker will look at your existing mortgage product and financial circumstances and compare your loan to other mortgage deals on the market.
Once this comparison is done, a mortgage broker will make a recommendation to you. It is entirely up to you whether you take this advice. Approaching a mortgage broker will not tie you into taking a product from them.
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Why Should You Remortgage?
You should always prepare to remortgage 3-6 months before your mortgage product’s expiry date. Remortgaging prevents you going onto the standard variable rate and it can prevent escalating costs.
Remortgaging with a whole-of-market broker has the following benefits:
- Your deal will change to the most suitable product for your circumstances.
- It allows you to budget for the near-future and know how much your mortgage will be each month.
How Does the Rise in Interest Rates Affect Remortgaging?
When the Bank of England increases the base rate, it means banks and financial institutions have a higher borrowing rate. This higher borrowing rate increases costs for lenders and the products offered to customers are likely to have higher interest rates to offset those costs.
In short, this means the mortgage rate you fixed into a few years ago is unlikely to be available today. Remortgaging will however ensure you have the best rate you can have for your circumstances.
Is Now a Good Time to Lock in a Mortgage Deal?
Mortgages are complex products and managing a mortgage can be tricky. While it is fair to say in the near future the Bank of England base rate is likely to increase, it could decrease over the next few years as well. You may be concerned about fixing into a higher interest rate and missing any potential lower rates in the future.
When considering if now is the best time to remortgage you should contact a whole-of-market, ideally fee-free, mortgage broker like Boon Brokers for advice on your personal circumstances. If your deal is ending, you should look to remortgage and lock in a new deal in almost all cases. Even an unfavourable deal is likely to be much more competitive than a lender’s Standard Variable Rate.
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Is it Better to Get a 2-Year or a 5-Year Fixed Term?
This will be down to the advice from your mortgage broker, who will be able to provide professional advice on your exact circumstances.
There are various scenarios where a 2-year fixed may be more suitable than a 5 year fixed and vice-versa. For example, if you know that you will be moving home in 2-3 years’ time, a 2-year fixed product is likely to be more suitable. Whereas, if you are settled in your home, a 5-year fixed may be more suitable.
As for general advice on choosing a product to minimise your interest payments over upcoming years, we can use the Bank of England’s targets as a guide. The Bank of England expects inflation to fall back to their 2% target in around 2 years from August 2022. This is shown in their Monetary Policy Report. If that target is met, it is likely that interest rates in the mortgage market would fall as a result.
Therefore, if that inflation expectation is accurate, a 2-year fixed may be more suitable for clients hoping to choose the best option to reduce the overall interest payable in the near future. A 2-year fixed also usually has the benefit of a lower interest rate and lower early repayment charges than a 5-year fixed.
How to Find the Best Remortgage Deals?
There are many ways to compare remortgage deals but without doubt the most thorough way to get a tailor-made deal to your personal situation is by using a whole-of-market mortgage broker.
Comparison sites are becoming increasingly popular for remortgages. Even though you may be tempted to use one, to identify a bank to approach directly, they tend to show limited information with a headline interest rate. It may come as a surprise that the interest rate is not the be-all and end-all when it comes to picking a mortgage product. There are many other features of a mortgage like available term, overpayment facilities, early repayment charges, portability, cashback, product fees, lender service levels and more to consider. Unfortunately, more often than not, if you proceed directly with a bank instead of seeking advice from an impartial, whole-of-market, expert mortgage broker, you will not take out the most suitable mortgage product available.
Boon Brokers is a whole-of-market mortgage, insurance, and equity release broker. Contact us today to discuss your remortgaging options. Boon Brokers offers fee FREE remortgage advice.