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 will rise to around 10.9% by the end of 2022, driven mainly by energy and food price rises. 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 November 2022 when the base rate went up from 2.25% to 3%, the highest level since 2008. Nonetheless inflation is still rising, making more interest rate rises likely.
This has serious implications for the mortgage market, which will inevitably start to price in further future rises. This means higher mortgage rates. The market is currently pricing in further interest rate rises totalling almost 2% in the next year (taking the BOE base rate to 4.8%), so pushing the monthly repayment on a typical 25 year mortgage (that isn't on a fixed rate) up by £100 per £100,000 borrowed. That means on a £200,000 variable rate or tracker mortgage your monthly repayment could go up by £200 a month if you don't fix beforehand. The message is, if you are in a position to remortgage, it will pay to act sooner rather than later to secure the best fixed-rate deal, if you want to avoid your mortgage repayments rising in the future, as the best deals are being pulled by lenders at an increasing rate. I explain how to do this in the section titled "Get a free mortgage review now".
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 begin to rise again.
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.
More importantly, 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 cheap rate now, before mortgage rates rise 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".
As a tracker mortgage typically goes up and down in line with the BOE base rate, borrowers with this type of deal would have benefitted from the interest-rate cuts in 2020. 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, it makes sense to stay with your current deal. If, however, you anticipate rates will continue to go up soon - which evidence strongly suggests - 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?
Whatever deal you have, one thing is certain when it comes to interest rates: they have been rising in recent months and are likely to continue to do so. In fact the Bank of England has raised interest rates 8 times since December 2021 and the base rate now sits at 3%. With high inflation proving problematic investment markets are predicting the Bank of England will raise the base rate to around 4.8% by July 2023, as shown in the chart below (click to enlarge). That would mean the typical monthly repayment on a 25 year mortgage that isn't fixed will rise by another £100 per month for every £100,000 borrowed.
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 and how high they will go.
Get a free mortgage review now
Whichever type of mortgage you are on, it is a great 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. 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.
The whole process can be carried out online (without the need for face-to-face meetings). Habito has a 5-star rating on Trustpilot from over 5,000 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:
- Click the link - Habito mortgage review* and then click 'Get started'
- Create your account either by entering your email address and setting up a secure password or by linking your Facebook or Google account
- Enter your details
- 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. Typically the free remortgage check saves people around £80 per month per £100,0000 of mortgage. To get started
- Click the link free mortgage review in 30 seconds*
- Answer the four multiple choice questions about your situation
- Enter your email etc
- Then select the "Review my Mortgage" button
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 3%. 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, which around 70% of mortgage borrowers now are, then check the terms and conditions. Some lenders have SVRs which will always be at a maximum of, say, 2% above the BOE base rate.
Is now the best time to fix your mortgage?
As interest rates are 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. In September 2022 more than 40% of mortgage deals were pulled by lenders, many of them within 24 hours of being launched. So 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 will almost certainly benefit from fixing, as you will be able to secure a low fixed-interest rate.
The longer your fixed term, the longer you are locked into a lower 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. In addition, if the BOE base rate is cut (albeit that is extremely 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, including a 40-year fixed-rate from Kensington Mortgages and Habito. These attract a higher 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?"
So when is it worth remortgaging?
If your SVR is low (say around 3.25%) 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 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 typically rise and fall at the whim of the lender throughout the lifetime of the mortgage. However, you could benefit from a lower mortgage rate, 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 four questions about your situation and the highest-rated mortgage adviser near you will get in touch and inform you if it is possible for you to remortgage and how much you can save. Typically readers save around £80 a month for every £100,000 of their mortgage when they reduce their mortgage rate by just 1%.
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 flexible 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.
If a link has an * beside it this means that it is an affiliated link. If you go via the link, Money to the Masses may receive a small fee which helps keep Money to the Masses free to use. The following link can be used if you do not wish to help Money to the Masses or take advantage of any exclusive offers - Habito, Vouchedfor