Remortgaging in 2023 – is now the right time to fix & for how long?

This remortgage guide is broken into two parts. First, the short answer which will quickly help you decide whether to fix your mortgage, how long for and secure you the best fixed-rate mortgage deal. The longer answer will explain in detail:

• Why you should consider fixing your mortgage now
• When interest rates are likely to rise
• How long you should fix your mortgage for (2, 3, 5 or 10 years)
• How to find the best fixed-rate mortgage deal

The short answer: interest rates and remortgaging

According to the Bank of England (BOE), the annual rate of inflation peaked at the end of 2022, driven mainly by energy and food price rises. It currently stands at 6.7%. When inflation is above the BOE's target rate of 2% then it will look to raise interest rates to try and bring inflation back under control. The Bank of England has been increasing interest rates since December 2021, with its most recent rise being in August 2023 when the base rate went up from 5% to 5.25%, the highest level since 2008. Nonetheless inflation is still high, making more interest rate rises likely.

This has had serious implications for the mortgage market over the last 12 months, with lenders pulling hundreds of deals and raising the interest rates on their fixed-rate mortgages. The market is currently pricing in further interest rate rises totalling 0.25% in the next few months (taking the BOE base rate to 5.5%), so pushing the monthly repayment on a typical 25 year mortgage (that isn't on a fixed-rate) up by £13 per £100,000 borrowed. That means on a £200,000 variable rate or tracker mortgage your monthly repayment could go up by £26 a month if you don't fix beforehand. The message is, if you are in a position to remortgage, it may pay to act sooner rather than later to secure the best fixed-rate deal, if you want to avoid your mortgage repayments potentially rising further in the future. I explain how to do this in the section titled "Get a free mortgage review now".

Fixed-rate mortgages

If you have a fixed-rate mortgage then your mortgage repayments won't change as a result of interest-rate changes. During the initial introductory period, you are guaranteed to pay the same amount every month, which means you won't benefit from rate cuts but also won't be hit if interest rates rise.

With a fixed-rate mortgage it's a good idea to check when your deal runs out and if there is an early repayment charge if you end the deal before the fixed term comes to an end. If you can get a new mortgage deal at a substantially lower rate than you are currently paying, you may be able to save money by switching, particularly if there are low - or no - early repayment charges. However, in the current environment you are likely to pay a higher interest rate when you remortgage than on your existing deal because of the BOE base rate rises.

But remember, if your fixed-rate deal is due to finish in the next six months it is possible to arrange a new mortgage deal that will start when your existing fixed deal comes to an end. That way you can lock in a new rate now, in case mortgage rates rise further in the coming months, and avoid paying an early repayment charge at the same time.

For more information on fixed-rate mortgages, check out our article "What is a fixed-rate mortgage? Everything you need to know".

Tracker mortgages

As a tracker mortgage typically goes up and down in line with the BOE base rate, borrowers with this type of deal benefitted from the interest-rate cuts in 2020 but have been hurt by the rises since 2021. However, the decision now on whether to remortgage will largely be determined by what you think is going to happen to interest rates in the future. If you believe rates are going to stay at their current levels for an extended period or fall, it makes sense to stay with your current deal. If, however, you anticipate rates will continue to go up it could pay to fix now while you can still get a competitive fixed-rate deal.

Our article "What is a tracker mortgage and is it right for you?" has more details on tracker mortgages.

Are interest rates likely to rise?

The Bank of England raised its base rate 14 times between December 2021 and August 2023 so the base rate now sits at 5.25%. In September 2023, the Bank of England unexpectedly kept the base rate at 5.25%, whereas the market had anticipated it would raise it to 5.5%. However, the Bank of England did warn that it will raise the base rate again if inflation proves stubborn. It means that investment markets are predicting the Bank of England will likely raise the base rate to 5.5% by the end of 2023, as shown by the green line in the chart below. That would mean the typical monthly repayment on a 25 year mortgage that isn't fixed will rise by another £13 per month for every £100,000 borrowed. The other coloured lines show the market predictions made in recent weeks/months. For example, the blue line was the prediction made on the 7th July 2023. Or in other words the market now thinks the base rate won't rise quite as high as it previously thought. However, it will still rise from its current level of 5.25%, and average mortgage rates will inevitably be much higher than that.

Historically the norm for the base rate has been around the 5% mark. For the latest view on when interest rates might rise or fall, read the latest interest rate predictions. The article is continually updated and reveals when the market predicts interest rates will rise, how high they will go and when they will come back down.

Get a free mortgage review now

Whichever type of mortgage you are on, it is a good time to consider fixing your mortgage (or arranging a new one to start when your existing deal ends), before further base rate hikes come into force should they occur. Don't make the mistake of waiting for the Bank of England to raise interest rates again before making your decision because, by that point, the best remaining fixed-rate mortgage deals will have gone.

The simplest trouble-free route to make a decision, which I'd recommend, is to seek the help of a mortgage adviser. If you don't know a mortgage adviser whose opinion you trust then there are two ways to find a reputable one:

1) Use a leading online mortgage broker

You can have your mortgage reviewed for free online through Habito*, one of the first online mortgage brokers in the UK. I've personally been into Habito's* offices to grill them over their proposition and recommendation process and was impressed. Habito will check through over 20,000 mortgages from more than 90 mortgage lenders for you before making a recommendation. That recommendation may even be that your existing lender offers the best deal and you should stay where you are. They will also help you decide whether a new fixed-rate mortgage is right for you.

The whole process can be carried out online (without the need for face-to-face meetings). Habito has a 4.8 (out of 5) star rating on Trustpilot from over 8,000 customer reviews who it has helped save hundreds of pounds a month. It only takes 10-15 mins to register online and Habito will be able to give you instant, free mortgage advice.

To get started:

1. Click the link - Habito mortgage review* and then click 'Get started'
2. Create your account either by entering your email address and setting up a secure password or by linking your Facebook or Google account
3. Enter your details
4. Once completed you will be put in touch with your own personal mortgage specialist who will guide you through the process from start to finish

2) Get a mortgage review using an offline specialist

Alternatively, you can request a free mortgage review* from a vetted FCA-regulated mortgage professional. It is the more traditional (offline) route but we regularly check the experience consumers receive to ensure that it is of the best quality, with no obligation on their part and that the savings are genuine. To get started:

1. Click the link free mortgage review*
2. Answer the brief questions about your situation
3. Enter your contact details

The long answer: should I fix my mortgage?

Why fix your mortgage rate?

At the heart of the ‘should you fix your mortgage’ question is a worry that interest rates will continue heading higher. The attraction of fixing your mortgage rate is the certainty it brings to your mortgage monthly repayments. The interest rate on a fixed-rate mortgage is fixed for a specific period of time and will remain at this rate regardless of changes to the interest rate in the marketplace. Once the fixed period expires then the rate will normally convert to the lender's standard variable rate (SVR), or another fixed-rate if available. Lenders frequently charge a fee - early repayment charge - if a borrower wishes to terminate or switch to another deal within the fixed term.

People who are currently paying their lender’s SVR are vulnerable to interest rate rises. If interest rates go up then so will their monthly mortgage payments. Similarly, tracker and variable rate mortgages have interest rates which reference the Bank of England base rate, currently at 5.25%. However, while tracker mortgages will move in step with the base rate lenders can often move their standard variable rates with no defined link to the base rate.

So, if you are on the lender’s default SVR, then check the terms and conditions. Some lenders have SVRs which will always be at least 2-3% above the BOE base rate.

Is now the best time to fix your mortgage?

As interest rates have been rising, there is growing demand for fixed-rate deals as buyers and those remortgaging want to secure a competitive rate. The trouble is that mortgage lenders will have limited availability on each mortgage deal. When they hit their target they will no longer accept any new borrowers. This has a knock-on effect to other lenders and the rates on even the cheapest fixed-rate mortgage will rise. So when consumers inevitably all rush to fix their mortgages as lenders introduce new and improved rates then all the best deals will quickly evaporate. If you are contemplating fixing your mortgage rate before a future rate rise, it's prudent to take action now rather than later.

How long should I fix my mortgage for - 2, 3, 5, 10 years - or longer?

If you have a low loan-to-value (the size of your mortgage as a percentage of your property value) then you could benefit from fixing, as you will be able to secure a lower fixed-interest rate than someone with a higher loan-to-value..

The longer your fixed term, the longer you are locked into an interest rate. Although there is no limit to how many times you can remortgage if you opt for a long fixed-term period you may have exit penalties and early redemption fees if you want to repay your mortgage or move (unless you have a portability option) or borrow more money. In addition, if the BOE base rate is cut (albeit that is unlikely right now) you won't benefit either. These factors have to be traded off against the cost of exiting your current deal (which forms part of the overall cost of remortgaging) and the certainty that a fixed-term mortgage provides.

A recent development in the market has been the introduction of longer-term fixed-rate mortgage deals with terms of up to 40 years. The longest you can currently get is a 25-year fixed-rate mortgage from Kensington Mortgages. These longer-term deals attract a higher interest rate, but give certainty over the amount you will have to pay over the long term. It also removes the cost and effort of having to remortgage every few years. There are more details in our article "Which are the best long-term fixed rates mortgages - and should you get one?"

2-year vs 5-year fixed-rate mortgage deals

When it comes to remortgaging, those that are keen to fix will likely find themselves choosing between a 2 or 5-year fixed-rate mortgage deal. At the time of writing, the best 2-year fixed-rate mortgage with a 60% loan-to-value is 5.6%, while the best 5-year fixed-rate mortgage with a 60% loan-to-value is currently around 5.2%. That means that it is currently more expensive to lock in a 2 year fixed-rate deal and this is because of the future expectations on where the Bank of England base rate is likely to be over the next five years. You can see the latest interest rate predictions in our image above.

To work out whether a 2-year or 5-year fixed-rate deal is best, you will need to consider all of the following:

• The latest interest rate predictions - While they are only predictions, it is worth considering where rates are likely to be over the coming years and how rate rises (or cuts) would impact your ability to repay your mortgage. Bear in mind that the market nearly always gets its predictions wrong!
• Affordability - Think about your income and outgoings and how these are likely to change in the coming years. Can you afford to remortgage at the current rate and could you afford to pay a higher rate if rates continued to rise?
• Desire for certainty - Are you more concerned about long-term certainty of what your mortgage payments will be? If so a longer-term fix will be more attractive.
• Future intentions - Are you likely to need to move in the coming years and can you port your existing mortgage? Are you planning on having children or will you need to move areas for work or to be closer to a particular school?

Those that think that rates may come down earlier than predicted might opt for a 2-year fix in the hope that they can remortgage to a better rate in two years' time. Of course, there is the risk that rates do not come down and could, in fact, be higher in two years' time.

Those keen to have the security of knowing how much their mortgage will be each month may prefer to opt for a 5-year fixed-rate deal. A lot can happen in 5 years, however, so think carefully about your family setup and also how you would feel if interest rates are suddenly cut. A key consideration when choosing a longer fixed-rate deal is the early repayment charges that may apply. An early repayment charge (ERC) is a fee applied by your mortgage lender if you change the terms of your mortgage or repay it before the end of your agreed fixed period. Early repayment charges on a 5-year fixed-rate mortgage can be as high as 5% of the outstanding balance in year 1, often reducing to 4% in year 2, down to 1% in the final year. Two year fixed-rate deals often have ERCs that start at 2% before falling over the course of the fixed period. So if for example, you plan to move home in the next few years, a long term fixed-rate deal may not be as attractive.

So when is it worth remortgaging?

If your SVR is low (say around 5% which is unlikely given the average is 8%) and you have little or no equity in your property, you may be better off sticking with your existing deal for the time being. In some cases you won’t have a choice if your LTV is too high or you are in negative equity. Yet for most people, the tide has turned and we are now at the point where it is worth considering remortgaging and/or fixing their mortgage rate.

Should I get a variable or fixed-rate mortgage?

While I've highlighted the pros and cons of fixing your mortgage the alternative is to deliberately choose a variable rate mortgage. With a fixed-rate mortgage your interest rate is fixed for, say, 2 years and when your fixed-rate period ends you move on to the lender's higher SVR. If you took out a variable rate mortgage, rather than a fixed-rate mortgage, then the interest rate would initially rise and fall in relation to the BOE base rate (i.e. a tracker mortgage) and then at the whim of the lender for the rest of the life of the mortgage. However, you could initially benefit from a lower mortgage rate (i.e a discounted mortgage) depending on the individual deal.

How to find the best fixed-rate mortgage

Most consumers will wrongly assume that using a price comparison site is the best thing to do when looking to remortgage. However, bear in mind:

• many mortgage deals are only available via mortgage advisers so don't appear on price comparison sites
• not everyone can get the rates quoted on price comparison sites
• price comparison sites don't take into account your credit rating or personal circumstances which will determine whether a lender will actually lend to you. For example, you may not be eligible for the deals quoted by comparison sites and won't find out until they credit check you. That in itself will then hinder future mortgage applications
• there may be options open to you other than fixing your mortgage, such as a capped mortgage.

That is why you are almost always better off seeking advice from an independent mortgage adviser rather than going it alone. Which is why most borrowers now use a mortgage adviser to find the best deal from a lender who will actually lend to them.

I therefore recommend that you arrange a free mortgage review* by an FCA-regulated mortgage adviser. Simply click on the link and answer the few questions about your situation and a regulated mortgage adviser will get in touch and inform you if it is possible for you to remortgage and how much you can save.

How to research the best mortgage deals yourself

Alternatively, if you do want to go it alone the first thing you need to work out is what fixed-rate you will get. This will depend on, among other things, the amount you want to borrow compared to the value of your property (LTV), your credit rating, your earnings and the type of mortgage you want.

A good starting point is our mortgage calculator, powered by Habito. This can give you an idea of the best and cheapest deals you may be eligible for.

One trick to keep your mortgage options open

If you want to fix your mortgage rate (or remortgage on to a new fixed deal) but are unsure whether to do it now or later, you could hedge your bets by getting a mortgage offer in place now and not completing for, say, 6 months. That way you have a good fixed-rate deal ready to go and can still take advantage of your current low rate for a few more months. Obviously, you must bear in mind that you will likely incur non-refundable valuation charges, whether or not you actually decide to complete in the end, and the lender could technically withdraw their offer before you accept. But these are risks that you would face even if you fixed now. The other benefit is that if a better deal becomes available while you are waiting for your new deal to start you could technically decide to cancel that and remortgage elsewhere, but you will likely incur the aforementioned charges from the previously secured lender and possibly your mortgage broker plus you'd likely require new credit checks.

 

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