Your mortgage is likely to be one of your biggest monthly costs and making sure you’re on the best possible deal can make a huge difference to your finances.
Soaring living costs mean many of us are feeling under financial pressure, and with interest rates expected to rise further this year, it makes sense to review your mortgage sooner rather than later.
Here are five good reasons why you should consider remortgaging right now. Remember always to check first that there aren’t any hefty redemption penalties or early repayment charges to pay before you leave your existing deal.
Why now is a great time to remortgage
Reason one: Remortgaging could save you hundreds - if not thousands - of pounds a year
There are around 800,000 homeowners who have been on their lender’s standard variable rate (SVR) for six months or more and could be better off if they remortgage, according to the city regulator the Financial Conduct Authority (FCA). The SVR is the rate that you typically roll onto automatically once your mortgage deal finishes and tends to be much more expensive than other mortgage rates.
Homeowners on a lender’s SVR often pay thousands of pounds a year more than those on low cost fixed or variable deals. For example, someone with a £150,000 repayment mortgage with 15 years left to run who is borrowing 60% of their property value would be paying £1,169 a month if they were paying the average SVR of 4.78%. Their monthly payments would fall to £1,000 a month if they remortgaged to a best buy two-year mortgage rate of 2.49%, a saving of £169 a month or £2,028 over a year.
The table belows the monthly and annual savings homeowners currently paying the average SVR of 4.78% could achieve if they were to remortgage to a best buy two-year fixed rate of 2.49%, based on a range of different mortgage sizes and terms. If you are able to save by remortgaging, you may want to consider using this cash to overpay your mortgage so you can clear it sooner. Most lenders allow you to pay off 10% of your mortgage each year without penalty, but check the small print of your particular deal first. You can find out more about the benefits and drawbacks of making overpayments in our article Should I overpay my mortgage?
|Mortgage amount||Term remaining||Monthly saving||Annual Saving|
Mark Gordon, director of money at Comparethemarket.com, said: “Languishing on a lender’s standard variable rate mortgage is likely to cost you thousands of pounds more than you need to pay. By remortgaging, the money could instead be put into savings or could be put away in preparation for any emergencies or to build up rainy day funds.”
Bear in mind that most mortgages have arrangement fees, and some may also have legal fees, although many remortgage deals come with free legal work included. To maximise any potential savings, make sure you always look at the overall cost of any deal you’re considering moving to.
Many people in their 50s and 60s stay on their lender’s SVR because they think remortgaging isn’t an option that’ll be available to them because of their age. However, age shouldn’t be a barrier and several banks and building societies will lend up to the age of 80 and beyond – subject of course to passing their affordability checks. Find out more in our article Mortgages if you’re over 50: what you need to know.
If you are struggling to get a standard mortgage because of your age, you may want to consider other options such as a retirement interest-only mortgage, or a lifetime mortgage.
With a retirement interest-only mortgage, rather than your mortgage finishing on a specific date you carry on making interest payments indefinitely so that you’re able to stay in your home without having to pay back the capital owed.
The capital only has to be repaid when you die or move into long-term care and the property is sold. You can find out more in our article How retirement interest-only mortgages work.
Another option is a lifetime mortgage, which is a type of equity release plan, so there are no monthly interest payments to make.
Instead, the interest you owe builds up over time and only has to be paid back, together with the amount borrowed, when you either die or move into long-term care. Learn more about lifetime mortgages in our guide Lifetime mortgages explained and about the differences between lifetime mortgages and retirement interest-only mortgages in our article What’s the difference between a lifetime mortgage and a retirement interest-only mortgage?
If you want to see how much a lifetime mortgage is likely to cost you based on your individual circumstances, our lifetime mortgage calculator can crunch the numbers on your behalf.
You must seek professional advice before you can apply for a lifetime mortgage. You can find an equity release adviser via the Equity Release Council’s (the trade body for the equity release sector) website here. Find out more about equity release in our guide Equity release: What is it and how does it work?
If you’re looking for somewhere to start, you can get fee-free expert advice from a Rest Less Mortgages equity release specialist, with no broker fees on application. They are active members of the ERC and can advise on equity release mortgages from the whole of the market. They’ll listen to your needs and talk you through your options, so you can decide if equity release is the right option for you.
Reason two: Mortgage rates are still competitive
Mortgage rates have been very low over recent months, but with the Bank of England raising the base rate from 1% to 1.25% this month, and with further rate rises expected in 2022, the best deals are unlikely to hang around for long.
This means that if you spot a mortgage deal you like – and you don’t have any redemption penalties to pay if you’re leaving your current mortgage – you should grab it while you can.
A spokesman for Moneyfacts.co.uk said: “Borrowers sitting on a variable rate may want to lock into a competitive fixed rate mortgage deal to protect themselves from rising interest rates, perhaps sooner rather than later as fixed rates rise, with the average two-year fixed rate surpassing 3.00%.
“Fixing for longer may be a logical choice for peace of mind with mortgage payments when other household costs are increasing. The differential rate between the average two-year and five-year fixed mortgage rate is much smaller than in previous years
Reason three: Remortgaging could provide you with some protection from economic uncertainty
If you’re currently on your lender’s SVR, your mortgage rate and your monthly payments will move up and down depending on what happens to interest rates. Although interest rates are currently low, no-one knows when or by how much they might rise in future, and rising inflation means many expect a series of rate hikes this year.
If you’re worried about your payments increasing imminently, remortgaging to a fixed rate mortgage could provide valuable peace of mind that they won’t change whatever happens to interest rates.
David Hollingworth, spokesman for L&C Mortgages, said: “In the current climate being able to lock down the cost of the mortgage could not only save hundreds of pounds per month but also help give some certainty against a less certain economic backdrop.”
Reason four: You might have moved into a different loan-to-value band
When you remortgage, you’ll notice that deals usually show a maximum loan-to-value figure expressed as a percentage next to them.
The loan-to-value is the amount the lender is prepared to let you borrow in relation to the property’s value. For example, if a mortgage has a maximum 80% loan-to-value, this means that you’ll only be able to borrow up to 80% of your property’s value, so you must own at least 20% of the equity in your home.
If a mortgage has a 60% maximum loan-to-value, you’ll only be able to borrow up to 60% of the property value and must own at least 40% of the equity in your home.
The best mortgage rates are normally reserved for those with a large amount of equity in their property, as they’re considered the lowest risk by lenders. For example, Lloyds Bank is currently offering a five-year fixed rate mortgage at 2.74% for homeowners looking to remortgage at a 60% loan to value. This deal has fees of £999. The rate rises to 2.85% if you’re remortgaging at a 85% loan to value.
Monthly payments on the same £150,000, 15-year repayment mortgage at the 2.74% rate would cost £1,017 but £1,025 at the higher rate of 2.85%. Over the five-year fixed rate period, you’d save £480 if you found yourself eligible for the 60% LTV mortgage deal rather than the 85% deal, before arrangement fees are taken into account.
If you’ve been slowly paying off your mortgage and benefiting from rising house prices over the years, you are likely to own a greater proportion of equity in your home, so it’s well worth seeing if you’re now eligible for better mortgage rates. If you find yourself close to the edge of the next LTV band, you might also want to see if it’s worth scraping together enough from savings to pay off your mortgage to enable you to move down a LTV band and access better mortgage rates.
Reason five: lenders are tightening up their affordability criteria
Soaring living costs are prompting some lenders to reassess how much they’ll lend if you’re looking to remortgage.
Santander, for example, has already announced that it’s changing the way it calculates how much it’s willing to lend, with other lenders also reviewing their affordability criteria. Affordability calculations are used to work out how much a borrower can afford to repay given their personal circumstances, and to test whether they could still meet repayments if more pressure is placed on their finances.
Rest Less mortgage expert Teddy Cenaj said: “I believe general affordability will fall, particularly if lenders are using ONS data for household expenditure as this will increase across the board going forward.”
It may therefore be sensible to remortgage as soon as possible, as securing a new mortgage deal when your current deal ends could become much harder if lending criteria has changed.
Find out more in our article Is it getting harder to get a mortgage?
When to remortgage
Lots of people put off thinking about remortgaging until their current deal has finished, so that they don’t get hit with any early repayment charges for leaving before their initial term is up.
While it’s sensible not to incur any penalties, it is usually possible to secure your next deal up to three or sometimes six months before it actually begins, so that you can roll from one deal straight to the next without having to move onto your lender’s SVR in between.
The remortgage process typically takes around six to eight weeks, but can take longer for non-standard cases, so it’s well worth getting started sooner rather than later if your mortgage deal is due to finish soon. Alternatively, if you know when your current deal finishes, set up a free reminder and we’ll let you know when it’s time to search for a better deal.
In some exceptional cases, if you’re stuck on a particularly high mortgage rate, it may still be worth remortgaging before your current deal ends, even if there are early repayment charges to pay. It’s worth getting a fee-free broker to crunch the numbers on your behalf to see whether it makes financial sense to move to a new deal if early repayment charges still apply.
How to get the best deal when you remortgage
Use a mortgage comparison tool
It’s almost always a good first step to see what rates are available in the market. You can use our mortgage service to compare remortgage deals from the whole of the market and find out how much you might be able to save. If you are nervous about switching lenders, it is still worth filtering for deals from your existing lender so you can see how much you could save from remortgaging with them. Our mortgage service allows you to compare the best rates from both your current lender and the wider market, quickly and easily.
Understand acceptance criteria
It’s important to note that when using any mortgage comparison service, you may not be accepted for the lowest rates. Lenders use a variety of factors in their lending decisions, including your credit score and financial history. They are also forced by the regulator to obey strict affordability rules and are obliged to check that people can afford repayments at much higher rates of interest.
If you are looking to extend your mortgage term into retirement, the lender’s affordability assessment is often more of a challenge to acceptance than your age. As they will have to model the affordability assessment on your post retirement income. Find out more in our article Mortgages if you’re over 50: what you need to know.
Speak to a fee free mortgage broker
The mortgage market has been a heavily intermediated (or brokered) market since the FCA implemented the Mortgage Market Review in 2014 to try and reduce the amount of unaffordable lending that led to the financial crisis of 2008. This means that the majority of mortgages and remortgages today are conducted through a broker.
The good news is that if you use a fee free broker, this does not need to cost you any more. Most mortgage brokers get paid commission from the lender, so you shouldn’t need to pay your mortgage broker a fee on top of this. Vitally, this commission does not usually make the rates available through a broker any less competitive, and in fact some lenders have exclusive deals that are only available through mortgage brokers.
Perhaps the best reason to use a fee free mortgage broker is because they can help you navigate the different lenders acceptance criteria. This is particularly useful given how quickly the mortgage market is changing right now, and if you have any unusual circumstances around your income or property.
Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage. If you’re looking for somewhere to start, you can speak to a Rest Less Mortgages advisor and get high quality advice** on standard, retirement interest-only and buy-to-let mortgages.
Help with your mortgage
Sadly we know that not everyone is able to remortgage right now. Many people are experiencing financial difficulties and so may be struggling to keep up with their mortgage payments. If you’re in this situation, it may be worth speaking to your lender to see whether you might be able to extend your mortgage term to make payments more affordable, or if there are other ways they might be able to help you. Find out more in our article What can you do if you can’t pay your mortgage?
Others may be unable to remortgage because they are ‘mortgage prisoners’ trapped paying expensive standard variable rates as a result of not meeting lenders’ affordability criteria. Our article What help is there for mortgage prisoners? explains what is being done to support people in this situation.
If you can’t currently remortgage, there may be other ways to reduce your outgoings. Learn more in our article Eighteen ways to cut costs.
Have you recently remortgaged or are you considering doing so? If you have remortgaged, how much did you manage to save? We’d be interested in hearing from you. You can join the conversation on the Rest Less community or leave a comment below.