Are you one of the estimated 4 million households in the UK languishing on a Standard Variable Rate (SVR)? Then you’re in the perfect place to remortgage and effectively get a Christmas bonus.
More than a third (36%) of homeowners are currently stuck on their lender’s usually more costly SVR. Most are because they haven’t taken action after their initial fixed rate lapsed.
Maybe you’re feeling the pinch since the Bank of England’s November 2 rate rise? It means the cost your mortgage has gone up by 0.25%.
Having a mortgage on the SVR is unlikely to be your most cost-effective option. For many people, changing lender or product and moving to a fixed-rate remortgage would save money.
Cutting your mortgage costs makes extra sense at Christmas as it’s such an expensive time of year. The average family of four will shell out around £800 over the festive period. This is what gets spent on food, gifts, parties and decorations.
And we’re all feeling the squeeze in the cost of living with rising energy and day-to-day costs. Food prices have gone up at their fastest rate in four years – due to Brexit and the fall in the value of sterling.
“If your mortgage is your single biggest expenditure, cutting its cost is likely to be your biggest single money saver.” So says Martin Lewis of Moneysavingexpert.com.
What Does Remortgaging Involve?
Remortgaging means moving your existing mortgage from one lender to another. You don’t have to move house to do it to get yourself a better-priced deal.
But, while remortgaging can save you money, there’ll be an initial outlay to you. Mortgage interest rates have dropped over recent years. But the set-up fees lenders apply have increased.
Even so, the savings can still be significant. Just do your sums before changing product.
There are three factors that will help ensure you get the best possible deal:
1)Do You have Equity in Your Home?
If yes, you’re in a strong position to remortgage. If you owe £150,000 and your house is now valued
at £200,000, you have £50,000 equity.
For the best deals, you should be borrowing less than 95% of your home’s current value. If you’re borrowing 60% or less, you’ll get a bigger choice of low-cost options.
That said, watch out your loan drops below a certain amount — say around £50,000. It may not be worth swapping lender because you are less likely to make a saving if the fees are high.
2)How’s Your Credit Score?
You shouldn’t think about remortgaging until you’ve checked this. Because you can be sure lenders will. Credit scoring helps them predict how trustworthy you are. Your credit file will determine the product and rate you’re offered.
These are held at the three big agencies: Equifax, Experian and Callcredit, which each have lots of data on you.
But errors happen and can affect remortgaging applications. Make sure you check your files to be certain nothing’s wrong.
You can also obtain your free credit report and score on Noddle’s website: www.noddle.co.uk.
3) Can You Afford Repayments?
Since April 2014 much stricter affordability criteria have come in. So lenders have to ‘stress test’ if you can afford to repay.
They look at a worst-case scenario. They check if you’d be able to make your monthly payments if rates were to rise to 6% or 7%. That’s unlikely at this current time. But the Bank of England has warned since its November rise that further rate increases may be on the horizon.
The only lender that won’t check this is your current one. But often they’re unlikely to be offering you a better deal.
We’ve a whole lot more detail on how you can make yourself remortgage-ready in this handy guide we’ve produced.
Are fixed rates the best deal?
Many remortgaging experts believe that at the current time, they are. As interest rates are low, there
are lots of competitive deals around.
It’s up to you whether you fix for two, three, five years or longer. But taking out a fixed rate mortgage is basically an insurance policy against interest rates going up. If rates were to plunge (unlikely right now), your payments won’t fall however.
Also consider if you think you might need to move home in the fixed-term period. Many products are portable so it’s worth considering one of these if you think you’ll be moving property.
But overall, fixed rate remortgages give you certainty. They allow you to pin down the monthly cost of what is probably your main outgoing.
Peace of mind and security in this time of rising costs of living can be a big bonus.
A Gift for the Future
With fixed rates, it’s worth taking the long view. Moving from your SVR to a fixed rate could really be a festive bonus and a gift that keeps on giving.
Once you’ve paid the set up fee, it could mean you’re saving money each month. That could add up to thousands of pounds saved across the course of each year.
There’s a bewildering choice of remortgaging products available. Not all of them will be right for your circumstances. If you would like help finding the best possible deal for yourself, contact our team of remortgaging advisors here.
Mortgage Advice Services and all of our members of staff would like to wish you and your family a Merry Christmass and Happy New Year, we would also like to thank you for your custom in 2017 and hope to continue doing so in the New Year.