Was your January resolution was to take a better grip of your finances? Then remortgaging might be the solution you need for better control of your outgoings.
Interest rates (for the moment) may be historically low. But are you among the two million homeowners in the UK currently on a standard variable rate? Or is your current deal about to end and you soon will be?
The Standard Variable Rate Explained
The standard variable rate (SVR) is the mortgage interest rate you’re given after finishing your introductory fixed, tracker or discounted deal.
It’s different from a tracker because it doesn’t track above the Bank of England base rate at a set percentage.
Instead, it’s decided by your lender. And SVRs, right now, are considerably higher than fixed rates.
The Bank raised interest rates by 0.25% in November 2017. That meant the average two-year tracker rate has increased by 1.77% in November to 2.02% in December. This is according to figures from Moneyfacts.
Meanwhile, standard variable rate mortgages have risen more gently, going up on average from 4.6% to 4.74%.
And fixed rates? There too the increase has been more slight. The average two-year fixed rate mortgage went from 2.21% in October to 2.35% in December.
So if you’re on a SVR, here’s the bad news. You’re almost certainly already (or about to be) paying more than you need to for your mortgage.
And the good news? There’s a big range of better market deals currently available. The right one could save you thousands of pounds over the course of the year.
That’s what you could save right now by swapping from your SVR to either a fixed rate or a tracker.
The Base Rate Factor
But bear in mind too that the Bank of England is expected to further hike interest rates in two stages of 0.25% to 0.5% in 2018.
Assuming the forecasts are correct, a homeowner with a £100,000 variable-rate mortgage over 25 years would then see their annual bill rise by over £300.
Likewise a homeowner with a £200,000 mortgage would then be facing a significant £600 increase.
Should You Fix Your Mortgage?
Only you can decide this. It depends on how you think the economy will perform and your appetite for risk.
But it’s worth factoring into your decision this fact. Some experts now expect Base rate increases to continue beyond 2018 and right across 2019. By 2022, the base rate is predicted to be 1.25%.
The difference between average tracker rates and fixed rates are now small. With the future uncertain, fixed rates have an obvious appeal…
And that’s clearly how many British homeowners feel. More of us are opting for security.
Many of us, too, looking to pay off our mortgages as fast as we can. Typically you can overpay your mortgage by 10% annually with a fixed deal product.
So it’s no surprise that the popularity of fixed rate mortgages has been on the up since 2011. Fixed deals now account for almost 90% of all products.
Financial Costs to Consider when Remortgaging
- The costs (if any) of leaving your existing deal.
- Any early repayment condition.
- The fees that come with the switch and the new mortgage.
- Legal fees if required to solicitors as well as charges associated with setting up a new mortgage. These might include valuation fees, arrangement fees and booking fees.
If you feel remortgaging is the right decision for you, make a start by reading our get remortgage ready checklist here.
If you’d like advice on finding the most cost-effective product for remortgaging for your circumstances, you can get in touch with us here.