Need to remortgage and worried about how much extra you’ll pay? Here are three essential things to know if you’re due to remortgage in the next six to 12 months that could save you money.
If you’ve been on a fixed-rate mortgage deal for the past five years, you might be extremely concerned about how much extra you’ll have to pay each month when your term ends and you have to remortgage. Rates have increased considerably over the past three years, notably following the announcement of the ill-fated mini-budget by former Prime Minister Liz Truss in September 2022, which significantly impacted the financial markets.
However, mortgage rates have been coming down in the past year, which is good news for anyone due to remortgage. So, while you may not get the same low rate you would have secured five years ago, you’ll be in a better position financially than if you had been due to remortgage two or three years ago. In short, if you shop around and prepare early, you could save money.
Recent base rate cut
Many mortgage lenders are cutting their rates following the Bank of England’s base rate cut on 7 August, when the rate went down from 4.25% to 4%. This was the fifth consecutive base rate cut in the past year.
The Moneyfacts website says that the average two-year fixed mortgage deal is currently standing at 5% and the average five-year fix at 5.01%. However, two years ago, they were averaging 6.86% and 6.35% respectively.
Most importantly, banks are competing for your business, creating some healthy competition that will benefit you. Some lenders are offering rates under 4%, and the mortgage market is much more competitive now than a year ago. We’ve had several clients switching onto five-year fixed rate deals at rates slightly under 4%. One major bank has been offering two-year fixed rates at around 3.75%.
Don’t drift onto your lender’s standard variable rate
If you’re one of the 900,000 people due to remortgage in the second half of this year, then acting early could save you a considerable sum. If your fixed-term deal comes to an end and you do nothing, your lender will place you on its standard variable rate (SVR), which is usually higher than the original fixed-rate you have now.
However, if you speak to a broker and plan ahead, you can switch to a more competitive deal – either with the same lender or a new one, depending on your circumstances – and prevent this from occurring.
So how can you go about remortgaging? Firstly, don’t delay.
Start the process early
Starting a remortgage conversation around six months before your existing deal comes to an end will give you time to explore all of your options. Speak to your broker as soon as possible and get them to search the market for you.
We always aim to secure the most competitive rate for you early on, so if rates go up before your deal starts, you’ve locked in a better rate. If rates fall, we can resubmit your application to get you the lower deal.
Seek expert advice
Your lender will only offer you their products, which might not be the best on the market. A good broker will compare deals from across the market to find the most competitive rate for your needs. This could result in a significant saving over the term of your mortgage.
Even if your lender’s initial offer looks attractive, it’s worth getting a second opinion before committing. A broker also has access to some deals not directly available to the general public.
Think about your goals
Think about your long-term goals when choosing a fixed-term mortgage. Will you still be living in your current home in five or ten years, or do you plan to move? Do you want stability or flexibility?
If stability is key, a longer-term fixed rate might be the right choice. If you want more flexibility – for example, to move or remortgage sooner if rates drop – a shorter-term deal could be better.
Finally, consider making overpayments on your mortgage if you can. Even small, regular overpayments can significantly reduce the total interest you pay, helping you become mortgage-free sooner. While this may not be possible for everyone, if you can afford to do it – even by a small amount – it will save you money.