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 10.4%. 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 March 2023 when the base rate went up from 4% to 4.25%, the highest level since 2008. Nonetheless inflation is still high, making more interest rate rises possible.
This has serious implications for the mortgage market, which may start to price in further future rises. This means higher mortgage rates. The market is currently pricing in further interest rate rises totalling more than 0.4% in the next six months (taking the BOE base rate to over 4.6%), so pushing the monthly repayment on a typical 25 year mortgage (that isn't on a fixed rate) up by £20 per £100,000 borrowed. That means on a £200,000 variable rate or tracker mortgage your monthly repayment could go up by £40 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, 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 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?
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 11 times since December 2021 and the base rate now sits at 4.25%. With high inflation proving problematic investment markets are predicting the Bank of England will raise the base rate to around 4.6% by August 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 £20 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 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 7,800 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. To get started
- Click the link free mortgage review*
- Answer the brief questions about your situation
- 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 4.25%. 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, 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. 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 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 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. 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 4%) 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.
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
hi there. great set of articles on path of short term interest rates.
wondering however, you have a graph titled as follows;
‘How high will interest rates go? Here’s what the market is pricing in’
where does this market information come from please? is this a poll of economists or are there financial instruments that are suggesting or predicting the likely future interest rate path?
your help would be appreicated.
It is based upon overnight index swaps published by the Bank of England. Or in other words, it’s based on data showing where financial institutions are pricing where interest rates might be in the future.
I have a fix (2.60) ending in September 2023. Is it worth coming out of fixed term now (penalty around £1500) and fixing for another two years with same provider at a higher rate? There’ll also be a fee of £999 to pay. Mad or prudent?
Here is a repayment calculator that will help you decide whether paying an early repayment charge (ERC) now makes financial sense. It works by comparing paying the ERC and moving onto the new deal now against waiting until your current deal is due to expire (when there would be no ERC) and securing a new fixed mortgage rate then based on where the market predicts interest rates are going.
But before you do anything make sure you speak to a mortgage adviser – if you don’t have one already you can trust then you can request a mortgage review via the link in the article above.
Looking at the graph showing the predicted BoE interest rates I do not understand why in July 2023 when the BoE rate is anticipated to be 5.5% it is suggested that 2 year fixed rates could be as high as 6.5%. Assuming the interest rate predictions are correct (not guaranteed I know but lets assume they are for this purpose of this) the market would be pricing in declining rates from July 2023, therefore surely a 2 year fixed rate is likely to be less than the suggested 6.5%
Fixed rate mortgage rates are based upon the funding that mortgage lenders can secure. This can be via government schemes or through the open market. However it is very hard to gain visibility on what these rates could be in the future. Factors that will influence this include the Bank of England base rate and gilt yields.
The above chart takes all of this into account by looking at the swap rates in the market – which provide a pretty accurate picture of where the base rate is predicted to be in the future. Typically the best fixed mortgage rates are at least 1% higher than the base rate. That’s not set in stone but has often proved a good benchmark in the past.
If the market began predicting rates would tumble in the future, then conceivably yes you could get long term fixed rate deals that are lower than the “predicted base rate + 1%” estimate. But just as equally the opposite could be true too. So it remains a good benchmark.
Really helpful and coherent advice.
I’m on a tracker mortgage (no early repayment fees) and I have managed to get it down to less than £40,000 through overpayments. My question is, if I have the funds, should I just pay it off? I know the advice used to be that if mortgage rates are higher than savings interest rates, then maybe you should. But what are the other pros and cons? I am single, aged 50 and retired (due to ill health). Is it worth staying on the mortgage ladder or not? Thanks
Here is an article which you will find useful – How to pay off your mortgage faster – and is it a good idea?.
Excellent website and very helpful information and links provided.
I need your expert advice though. My current fixed mortgage is ending 1st Oct 2022. and i have been trying to get a 2 year fixed (As am more likely to sell the current property in a couple of years) . Am getting a tracker mortgage for 2.59 % and a 2 year fixed for 3.2 – 3.44 %. Which one do you suggest i take ?
Thanks & Regards
I can’t tell you which to take out, as it depends on your own circumstances (whether you decide to move or not, your finances etc) and what your view is on future interest rates and whether you want certainty or not. If you want certainty that your mortgage repayments won’t rise then a fixed mortgage will give you that but you will pay more initially. If you want greater flexibility (i.e. you might move in a few months) then a tracker gives you greater flexibility – as fixed mortgages have early repayment charges during the fixed period – but your monthly mortgage repayments are at the whim of interest rate moves with a tracker.
You can see the market’s latest interest rate predictionshere. But remember – markets don’t have a great track record of predicting the future.
Also compare all the costs involved and not just the monthly repayments. Just remember, that whatever decision you make it is made with the best information available to you at the time. Hindsight is always a wonderful thing but not very helpful.
Fantastic article, and very timely. I’ve used both free advice options to choose the best one!