Is now a good time to remortgage?

Adapted from a Zoopla Article by Nic Hopkirk 25 March 2022

With interest rates rising four times in the last three months, and further rises expected later this year, could now be a good time to remortgage?

Key takeaways

• If you're on a standard variable rate or tracker mortgage, now could be a good time to investigate a low-interest, fixed-rate mortgage
• ·74% of the UK population are currently on fixed-rate mortgages, and if the interest rate is low, you're in a good position and there's no need to remortgage if your deal isn't ending any time soon
• Be aware that if your deal is about to come to an end, you're likely to go onto your lender's standard variable rate - and with interest rates rising, this will be a lot more expensive
• There are still plenty of fixed-rate mortgages available for under 2% interest.

The Bank of England has raised interest rates four times in the last three months. The latest rise, from 0.5% to 0.75%, means rates are at their highest level since March 2020.  The change will add around £42 a month to repayments for someone with a £200,000 mortgage. A combination of rising inflation and the war in the Ukraine disrupting global supply chains for food and energy has led to a rise in prices. The increase in interest rates by the Bank is an attempt to try and reduce that inflation and calm the cost of living.

How do rising interest rates affect the cost of mortgages?

Higher interest rates make borrowing more expensive. During the pandemic, the Bank of England slashed the Base Rate to an all-time low of 0.1%. The Base Rate impacts all other interest rates. When it’s low, it costs you less to borrow money, but it also means you make less money in interest on your savings. When the Base Rate is higher, interest rates on mortgages tend to be higher too. Higher interest rates on fixed-rate mortgages means that it will cost you more to repay the mortgage in the long term. That said, if you are already on a fixed-rate mortgage, as 74% of the UK population currently are, your payments will continue to stay the same, despite the rise in the Base Rate. Variable rate and tracker mortgages tend to follow the Base Rate more closely, so will rise and fall as the Base Rate increases and decreases.

Do you lose money when you remortgage?

Most people remortgage to get a cheaper rate and pay less money on their mortgage as a result. If you are at the end of your mortgage agreement or ‘term’, then you shouldn’t need to pay any exit fees or early redemption penalties. If you aren’t, be aware that the cost of leaving your current mortgage could run into thousands, so it’s well worth checking first. However, if you’re moving to a deal with a lower interest rate, you could save yourself hundreds of pounds each month. And at a time when interest rates are rising, it's best not to go onto your lender's standard variable rate when your mortgage deal ends.

Is it worth remortgaging early?

The best time to start looking at other mortgages is around four to six months before your current mortgage deal ends.  Most lenders will allow you to lock in a deal with them between three to six months in advance.  So, if you’re tied into your current mortgage for another three to six months, you can ‘book’ a deal to start in three to six months' time, at the rate it’s currently being offered by the lender.

It can be a good idea to use a broker to ensure you get the best deal for you, as they’ll know the mortgage market inside and out and can often get the best deals.

Should you remortgage now?

The Bank of England’s chief economist has warned that further interest rate rises might be needed to curb inflation. Some experts are predicting that the Bank Rate could increase to 1.25% by the end of 2022. If you’re on a fixed-rate deal set at a low interest rate, you’re in a great position right now and there’s no need to look to remortgage. However, if your deal is about to come to an end, you're likely to go onto your lender's standard variable rate - and with interest rates getting higher, this will be a lot more expensive. So, it's worth shopping around now for another low-interest fixed-rate deal before interest rates go up again.

If you’re on a standard variable rate or tracker deal, your mortgage payments are likely to continue increasing this year. Now could be a good time to secure a fixed-rate deal at a lower interest rate to protect yourself against this. With fixed-rate mortgages, you’ll know what your outgoings are going to be every month, and that’s a good thing in a time of economic uncertainty.

The team at Bristol, Bath and Exeter Mortgages Online will be delighted to answer any queries regarding your current mortgage and will explore the whole of the market to find you the most competitive and suitable deal.

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