There’s been a lot in the news about rising interest rates and mortgages going through the roof in recent months. Here, Bethan Davies from Love Mortgages takes a look at the current challenges homeowners face when remortgaging and what they need to consider if they are about to look for a new deal.
The good news is that there are still plenty of good deals out there.
The challenge of rising interest rates is likely to affect as many as 2 million mortgage holders over the next 12 months. On top of this, the cost of living crisis is impacting everyone. We have increased food prices, utilities that are out of control, we’ve got stagnating wages and there’s a definite fear of a recession in the air.
If you think that this sounds bleak, you’re not alone. According to the Office of National Statistics, the proportion of people having trouble meeting their rent or mortgage payments is on the increase.
There are big challenges ahead for those who are looking to remortgage and have been on a fixed rate or other deal for the last few years. Here we look at what the future holds, whether it is as bad as everyone thinks and what you need to do to get the best deal for your property.
The Interest Rate Bubble
Around this time last year, the annual interest rate for the UK was about 2.25% and the average monthly payment for a mortgage holder in the UK was just under £800.
Whether you blame the sudden hike in October this year on the government and particular individuals within it, the truth is that the interest rates around that time threatened to surge to 6.65%. That affordable mortgage of £800 transformed almost overnight into a monthly bill of just over £1,300.
While the average for 2 and 5-year fixed mortgage rates later dropped to just below 6%, it was still a big hike for anyone who is planning to remortgage in the next year or so. For many people, it was likely to tip them over the edge of affordability, especially when matched against rising utility bills and food costs.
Good Rates are Still Available
The truth is that the market has calmed down and, hopefully, rises are not going to be as substantial as first thought.
You need to differentiate between interest rates and product rates as they are not the same thing. Just because interest rates are at 6%, that doesn’t mean a mortgage lender is going to charge you an identical rate.
In fact, lenders understand the challenge of high-interest rates and how this might affect individual homeowners and even damage the market. Because of this, many have reduced their own rates to offset the potential increase in costs. What this means is, good rates are still available and it’s still important to shop around and find the best deal.
A number of the big players in the lending market like Halifax and Virgin Money have set some of their rates 1% below the Bank of England’s basic rate. This means that Halifax is now offering a 5-year fixed rate of around 4.5% while Virgin Money has cut it to 4.65%.
Part of this is because the Bank of England’s rate rise hasn’t been as catastrophic and challenging as first thought. There is even talk that rates for mortgage products could come down even more over the next 6 to 12 months.
This coupled with reduced product rates themselves means mortgages aren't necessarily as expensive and inflated as many initially worried about.
This coupled with reduced product rates themselves means mortgages aren't necessarily as expensive and inflated as many initially worried about.
Extension of Mortgage Offers
If you will need to remortgage in the next 12 months, you must get started as soon as possible. Don’t wait until close to the end of the deal to start looking around.
Lenders in the past offered a mortgage in principle when they accepted a mortgage application and this normally lasted for 6 months. Because of the crisis in the lending market created largely by the mini-budget, many lenders are, if the borrower requests it, now extending for a further 6-month period without the need to reapply.
That means you could secure a good deal right now and give yourself a year before you accept it and remortgage. If the prices increase in that time, you can hold onto the better deal that you have secured right now. If, on the other hand, rates continue to come down, all you need to do is get a new deal when the time is right.
This is a win-win situation for anyone who is planning to remortgage as well as new homeowners who are coming onto the market for the first time.
Beth’s Other Top Tips for Remortgaging
There are several other things that you may want to bear in mind when it comes to applying for a remortgage.
Making an early application is important for other reasons. If you are on a fixed rate, discount, or tracker mortgage and its period expires, you automatically go onto the lender’s standard variable rates which could end up being between 5 and 6%. That’s another reason why you should be applying at least 3 to 6 months before the end date of your current deal.
These have been difficult times for many people and credit ratings for a lot of us might have taken a hit over the last few months. It’s also important to keep an eye on your credit report leading up to your application so that you can ‘polish’ your file and hopefully have greater choice when looking for deals on the mortgage market.
Finally, you still need to shop around and compare offers – that doesn’t just include interest rates but fees as well. This can be difficult if you are doing it on your own as it takes a lot of time and effort to undertake the research.
This is why approaching a broker is a good idea. At Love Mortgages, we’ve got a lot of experience in helping people find the right deal that meets their needs. If you’re looking to remortgage over the next 12 months, contact our amazing team today to see how we can help.