This remortgage guide is broken into two parts. Firstly 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
On the 11th March 2020 the Bank of England (BOE) made an emergency rate cut in a bid to reduce the economical impact of the coronavirus outbreak. Interest rates were cut from 0.75% to 0.25%, meaning they were back to the previous record low, last experienced between August 2016 and November 2017. In a surprise move, the Bank of England made a further emergency rate cut on the 19th March 2020, reducing rates to an all-time low of 0.10%. If you have a fixed-rate mortgage then your mortgage repayments won't change as a result of the rate cut, however it may be worth checking to see when your deal runs out and also any 'early repayment charges' that may apply, as you may still be able to save money moving to a mortgage that offers a better rate. If you are on a Standard Variable Rate (SVR) then you may see a reduction to the amount you pay each month, however it is at the lender's discretion and so not guaranteed. If you are on a tracker mortgage (a mortgage that tracks the base rate) then you should see a reduction in your monthly payments. Check with your lender to see how long it takes to take effect.
Whichever type of mortgage you are on, with BOE base rate now at the record low of 0.10%, now is a great time to consider fixing your mortgage as new competitive mortgage rates are released in response to the BOE rate cut. Don't make the mistake of waiting for the Bank of England to raise interest rates before making your decision because by that point, the best 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 3,200 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 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
Why fix your mortgage rate?
At the heart of the ‘should you fix your mortgage’ question is a worry that interest rates will soon be 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, or another fixed rate if available. Lenders frequently charge a fee (Early Repayment Charge) if a borrower wishes to terminate or switch to another interest rate within the fixed term.
People who are currently paying their lender’s standard variable rate (SVR) are vulnerable to interest rate rises. If interest rates go up then so will their monthly mortgage payments. Tracker and variable rate mortgages have interest rates which reference the Bank of England base rate, currently at 0.25%. However, while tracker mortgages will move in step with the base rate (e.g. 1% above) 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 SVR’s which will always be at a maximum of say 2% above the bank base rate (most Nationwide mortgages taken out before April 2009 fall into this category).
SVRs have traditionally been the most expensive way to borrow but a combination of a low base rate and the small print in the mortgage terms and conditions mean that many borrowers are happy sticking with their SVR for the time being. It’s a case of the small print actually benefiting the customer for once as some of the SVRs (namely those with a base rate plus 2% max limit) compare to the best tracker rates out there.
Are interest rates likely to rise?
Whatever deal you have one thing is certain when it comes to interest rates, at some point, there is going to have to be an interest rate rise. In fact the Bank of England raised interest rates in November 2017 for the first time in a decade and then raised them again to 0.75% in August 2018. People were getting too comfortable with the notion that 0.25% was the norm back then. The recent threat of a global pandemic is what has forced the BOE to cut interest rates twice in quick succession to an all-time low of 0.10%. Historically the norm has been somewhere around the 5% mark and so once the dust settles, the Bank of England will look to move rates back up. 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 start to rise.
Is now the best time to fix your mortgage?
In theory there has never been a better time to fix your mortgage rate. The consensus among mortgage advisers that I speak to say that 'mortgage rates have never been so attractive and now is the best time to remortgage and fix your rate'. However, they also add that while they have been surprised at how competitive (in terms of low mortgage rates) the mortgage market has remained this will change when consumers get wind of a potential rate rise by the Bank of England (BOE) and they all rush at once to fix their mortgages. The trouble is that mortgage lenders will have a 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. So if you are contemplating fixing your mortgage rate to take advantage of the recent rate cut then it's prudent to take action now rather than later.
Should I fix my mortgage for 2, 3, 5 or 10 years?
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 best 2 year fixed deals are around 1.27% (with a 60% LTV), however these are likely to come down with the recent interest rate cut. The best 5 year fixed deals are around 1.61% (with a 60% LTV), again, these should come down in the coming weeks. But do look beyond the headline rate and focus on the total cost of the deal including all fees. 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 further (albeit that is extremely unlikely) 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.
So when is it worth remortgaging ? If your SVR is low (say around 2.25%) 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 low 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 go on to the lender's higher standard variable rate (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 will likely benefit from a lower mortgage rate.
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 are 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 (called the Loan to Value), your credit rating, the fixed rate period, your earnings….
With regard to the term you might take, once again it depends on your view of interest rates and the level of certainty you want when it comes to your monthly payments. But what I would say is that a lot of mortgage advisers are suggesting that people consider longer-term fixed rates rather than a simple 2 year fixed deal. This is because while the market expects the base rate to rise it doesn’t expect it to rise quickly. Consequently if you take out a short fixed-term mortgage then just as it comes to an end you might find interest rates have just soared at a time when you are once again subject to a lender’s SVR (standard variable rate), but probably without an upper limit to any increases (most lenders have scrapped these on new mortgages). A decent mortgage broker should be able to advise you on this.
Once you’ve decided on the period for which you want to fix then find out the rate at which lenders may lend to you. Moneyfacts offer tables of the best mortgage rates. For example, here are the best mortgage rates for 2 year, 3 year, 5 year and 10 year fixed mortgages. But as I mentioned above such comparison tables don't show every mortgage deal available in the market. When using comparison tools bear in mind that the best rates are usually reserved for people with the lowest loan to values (LTV).
It goes without saying that when you take out a fixed-rate mortgage you could end up paying say 5% for 5 years and interest rates remain low throughout. If this becomes the case then you can only switch mortgage deals if you pay an early redemption charge. Obviously, interest rates might soar to 7% so you would be quids in on your fixed-rate deal.
One trick to keep your mortgage options open
However, if you want to fix your mortgage rate 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 complete 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.