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Mortgage rates are continuing to edge upwards, with several major lenders announcing price hikes in recent weeks, so if you need to remortgage soon, it could pay to act quickly.
Barclays and HSBC, which increased both residential and buy-to-let mortgage rates for the second time at the end of July, are among the lenders that have increased rates.
Halifax similarly has raised mortgage rates by up to 0.12 of a percentage point for first-time buyers and home movers, and by 0.05 of a percent for remortgage customers. Santander has also announced higher mortgage pricing, with most affected deals increasing by 0.15 of a percentage point, although some have risen by 0.19 of a percent.
Nationwide, however, has bucked the trend by cutting mortgage rates by up to 0.19 points.
The latest round of mortgage rate increases follows a spike in oil prices due to the Middle East conflict, which briefly climbed to around $100 a barrel towards the end of last month. Although prices have since fallen back below $90 after the US put strikes on hold, fears that higher energy costs could fuel inflation have pushed up mortgage funding costs for lenders.
As a result, many banks have passed these higher costs on to borrowers through a steady stream of mortgage rate rises.
Rachel Springall, Finance Expert at Moneyfactscompare.co.uk, said: “Borrowers will be deeply disappointed to see mortgage rates on the rise again, but this just shows how sensitive our financial markets are to geopolitical tensions. As feared, rising swap rates are a signal for lenders to move quickly to reprice their ranges, as fixed mortgage rates tend to follow these moves.”
More than 100 deals have been pulled from sale recently as lenders take time to reconsider their pricing strategies.
“The markets are incredibly sensitive to uncertainty, so it will be interesting to see how far mortgage rates will be pushed up in the days ahead, as we have already seen many major lenders increase rates, some have twice in the space of a week,” Ms Springall said.
If your mortgage is coming to an end
If your current mortgage deal is ending within the next six months, it’s worth securing your next deal quickly in case rates continue to rise. Most lenders will allow you to apply for a remortgage deal between three and six months before you need it to begin.
The main benefit of doing this is that you’ll then have peace of mind that you’ve got a deal in the bag which will protect you against any further potential rate increases, and, should rates fall unexpectedly, you’ll still have time to move to a lower rate if one becomes available.
“Anyone coming to the end of a fixed deal should be reviewing their options now rather than waiting for it to expire, since most lenders let you secure a new rate months in advance and switch to something cheaper later if pricing improves,” said Rachel Geddes, strategic lender relationship director at the Mortgage Advice Bureau.
“None of this should mean pressing pause on plans. Rates are still well below the peaks seen earlier this year, and lenders have shown all year that they’re quick to bring pricing back down once costs settle. The sensible approach is the same as always: act on expert mortgage advice now, rather than trying to time the market.”
Don’t stay on your lender’s standard variable rate (SVR)
Mortgage rates might be ticking up, but the worst thing you can do is automatically roll onto your lender’s standard variable rate when your current deal ends.
SVRs are usually much higher than other mortgage rates, so if you’re currently on yours, you could be forking out hundreds, if not thousands, of pounds more than you need to every year.
According to financial website Moneyfacts.co.uk, the average (SVR) is currently 7.13%, considerably higher than the pre-pandemic rate of 4.90% in March 2020. As mentioned, rates are expected to rise further in coming months in a bid to tackle inflation, so if you want to protect yourself from even steeper mortgage payments, now could be the time to act.
Many people over 50 are put off remortgaging because they don’t think they’ll be eligible for a new deal due to their age. However, there is a growing range of options available to homeowners in this age bracket, which you can read more about in our articles Mortgages for over 50s: What you need to know and Mortgages for over 60s: what you need to know.
How much can I save by switching away from the SVR?
The amount you’ll be able to save by remortgaging away from your lender’s SVR will depend on the size of your mortgage, and on the rate of your new mortgage deal.
For example, someone with a £100,000 repayment mortgage with 15 years left to run who is on the average SVR of 7.13% would currently be paying £906 a month. However, if they switched to a two-year fixed rate deal at 4.32%, their monthly repayments would fall to £756, a saving of £150 a month or £1,800 over a year. This example does not factor in any arrangement fees.
The bigger your mortgage, the more you’ll be able to save by remortgaging away from your lender’s SVR. If, for example, you have a £175,000 repayment mortgage, again with 15 years left to run, your mortgage payments would cost £1,586 on an SVR of 7.13%. If you remortgaged to the same 4.32% two-year fixed rate, your payments would fall to £1,323 a month, a saving of £263 a month, or £3,156 a year.
Remember, however, that there may be costs involved in remortgaging which might affect the amount you can save, such as valuation and legal fees. Find out more about these in our guide How much does it cost to remortgage?
Where can I find a good mortgage deal?
If you’re remortgaging, talking to your current lender can be a good place to start. They will be able to let you know how much you can save by switching to a new deal, and may offer preferable rates to existing customers. Knowing what they can offer you gives you a good basis for comparison when you start shopping around elsewhere.
If you do decide to stick with your current lender, this may make the remortgaging process more straightforward as you’re unlikely to have to go through all the same identity and other checks that you’d need to go through if you went to a new lender.
Whilst it may be the most straightforward route, it is important to remember that it’s unlikely (although not impossible) that your existing lender will happen to offer you the cheapest deal available on the market, so it’s worth checking how their deals stack up against the competition before making any decisions.
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What if my current mortgage deal has more than six months left to run?
You’ll need to do your sums carefully if you are still tied into a mortgage deal, as there’s a chance any early repayment penalties you might have to pay might wipe out any savings you make from remortgaging.
As a general rule, the longer your mortgage deal has left to run, the higher any early repayment charges are likely to be. That’s because these charges are often a percentage of your mortgage balance, with this percentage reducing over time. Check with your lender to see how much you’ll have to pay to move, or if in doubt seek advice from a mortgage broker who will be able to advise whether it’s worth remortgaging now, or waiting until your current deal ends.
It’s also worth noting that you can usually lock into your next mortgage deal up to six months before your current mortgage deal finishes, so if you’ve only got a few months left it’s well worth starting your mortgage search now. Learn more in our guide When is the best time to remortgage?
Get your documents ready
Mortgage rates are changing really fast at the moment, so you’ll need to have all the paperwork your lender is likely to need ready to go. If you don’t, then there’s a chance the deal you want will have disappeared by the time you get it together. You’ll usually need three months of payslips, three months of bank statements, proof of ID and address at the very least,
The average shelf-life of mortgage products has fallen to a matter of weeks, with the uncertain economic landscape prompting many providers to change their offerings quickly. Some deals have only lasted for a few days before being changed or withdrawn altogether.
The exact documents that lenders require for your mortgage application process may vary depending on your individual circumstances, for example, whether you are employed or self-employed. You’ll usually need three months of payslips, three months of bank statements, proof of ID and address at the very least
If you are self-employed, you’ll generally need to have at least two or three years worth of accounts available to show lenders. You can find out more about the sort of information you’ll need to provide to support your mortgage application in our guide How to apply for a mortgage – everything you need to know.
Many lenders offer free legal work if you’re remortgaging to them, but if you choose a deal that doesn’t make sure you have a solicitor lined up to carry this out for you. If you don’t already have a conveyancer or solicitor, read our article How to find a good conveyancer or solicitor.
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