After a tough year of sky-high mortgage rates and limited deals, the mortgage market is starting to show some more promising signs, with 5,678 deals available from the start of November – the highest number since March 2008.
You may want to act fast to snap up one of these deals, however, as the average shelf life of a mortgage deal is currently just 20 days, according to financial website Moneyfactscompare.co.uk, though that’s also an improvement on the 12-day average from July.
The past year has been a difficult time for homeowners and homebuyers alike, with soaring inflation prompting the Bank of England to ratchet up the base rate several consecutive times.
Rising interest rates led to lenders withdrawing their most competitive mortgage products, leaving the mortgage market largely void of low cost deals for the first half of the year. This lack of options left many borrowers unable to remortgage, with some forced to ride out the past few months on eye-watering Standard Variable Rates (SVRs) in many cases exceeding 8%.
Fortunately for borrowers, the base rate seems to have stabilised for the time being, and fixed rate deals have been gradually improving. As of November 21, the average rate for a two-year fix reached 6.13%, down from 6.47% in October – earlier this month, the best two-year fixes fell below 5% for the first time since the spring. Meanwhile, the average five-year fix continued to dip below 6%, dropping from 5.97% in October to 5.75%, with best buy rates starting from around 4.54%.
Whilst the best deals are usually reserved for those with large deposits or more equity in their homes, the market has also seen an increase in the number of competitive products available to those with higher loan-to-value (LTV) ratios. For example, those needing to borrow 95% of the property value now have over 250 options to choose from, rising to over 700 for those borrowing 90%.
You can find and compare mortgage rates on the market right now using our mortgage comparison tool.
Rather than being pegged to the base rate, fixed mortgage rates are predominantly determined by what is happening to ‘swap’ rates. These are fixed rates that institutions charge each other to borrow money.
Swap rates are affected by various factors, including long-term market projections for the Bank of England base rate, as well as the broader economic outlook. Swap rates currently suggest that the Bank of England base rate has reached its peak, and could start to fall back again once inflation is nearer the government’s 2% target.
While these are positive signs for the mortgage market, the rates on offer are still a far cry from those available just two years ago. The average two-year fix in November 2021 was 2.29%, well under half the current average. Remember, however, that these are all just average rates, so you may be able to secure a much lower rate than the average 6.13% two-year fix and average 5.75% five-year fix, provided you own a good chunk of equity in your home and can prove that monthly payments will be affordable.
Should I remortgage now?
With SVRs at their highest level since 2007 and fixed-rate deals on the way down, if you’re approaching the end of your current mortgage deal, remortgaging may feel like a no-brainer, particularly if you’ve been patiently waiting for lower rates to start emerging.
If you’re delaying remortgaging in the hope that rates may come down further, bear in mind that there’s no guarantee that rates will improve quickly, and it is very unlikely that they’ll return to the levels of two years ago any time soon, so there is certainly a good argument for remortgaging sooner rather than later – our article Five good reasons to remortgage right now goes into more detail.
If you want to roll over from one deal to another to avoid moving onto your lender’s SVR, you ideally think about applying for a new mortgage three to six months before your current deal ends. This way, you’ll have time to shop around, submit your mortgage application and arrange for your new mortgage to begin when your current deal finishes.
The best thing about starting it early is it gives you time to watch the market. If rates go down before your new deal is due to begin then as long as it makes financial sense you could look to switch to a lower rate. However, if rates go up then you already have an offer secured at the lower rate.
What are the different types of mortgage?
Now that the mortgage market is opening up and there is a record number of mortgage products to choose from, it’s worth familiarising yourself with the different types of mortgages so you can make the best choice for your finances. For a more in-depth explanation of the various types of mortgages, check out our guides Different types of mortgages explained and Should I go for a fixed or variable rate mortgage?.
Fixed rate mortgages
With a fixed rate mortgage, you lock into a certain interest rate for a period of time, usually two, three, five or ten years. Taking out a fixed rate mortgage when interest rates are low is usually a smart move, because it means that your repayments won’t increase even if interest rates go up.
A tracker mortgage is a variable rate mortgage where the amount of interest you pay each month is tied to the base rate, plus a set percentage. This means that if the base rate eventually begins to fall, so will the size of your repayments.
Discounted rate mortgages
A discounted mortgage, as the name suggests, is where the interest rate you’ll pay is a discount on the lender’s Standard Variable Rate (SVR). A lender’s SVR is usually what you will automatically roll onto when your introductory deal with them ends, and will generally be quite a bit higher than the rate on your deal. You normally don’t want to stay on the full SVR for too long if you can avoid it, so a discount rate can be a good option if you don’t mind the fact your payments will fluctuate over time.
With an offset mortgage, you keep a certain amount of cash savings in an account provided by the lender. Rather than earning any interest on this cash, it will instead reduce the capital left in your mortgage, meaning you only need to pay interest on your mortgage minus these savings.
For example, if you have £20,000 in savings and a £200,000 mortgage, you will only have to pay interest on £180,000. Find out more about offset mortgages in our guide What is an offset mortgage?
An interest-only mortgage is one where, as the name suggests, you only make interest payments each month, rather than paying off the capital. You then pay off the capital itself at the end of the mortgage term, so you’ll need to prove to lenders that you have – or will have – the funds in order to do this. Learn more in our article How do I pay off my interest-only mortgage?
Retirement-interest only (RIO) mortgage
RIO mortgages are similar to interest-only mortgages. However, instead of requiring repayment at a particular end date, instead you keep making interest payments until you die or go into long-term care. At this point, the loan is repaid, usually by selling the property.
A lifetime mortgage is a type of equity release plan where you receive the loaned amount and do not make any monthly repayments at all – neither loan capital nor interest must be repaid during the term, although you can make voluntary repayments if you want to. As with a RIO mortgage, this is usually only repaid when you die or move into care, again typically by selling the home. Find out more in our guide What’s the difference between equity release and a retirement interest-only mortgage?
Which type of mortgage should I go for?
Ultimately, the right answer will depend on your own situation – factors such as your need for budgeting certainty and financial priorities should play into which type of mortgage you choose. If you are unsure of what to do, it is usually wise to seek the advice of a mortgage advisor, who can give you advice based on your circumstances.
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 residential, retirement interest-only, equity release and buy-to-let mortgages.
If you are struggling with high mortgage payments at the moment, you’re not alone. Our article Eight ways to manage higher mortgage payments takes a closer look at some options that you could consider to cope through these tough times.
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