What to do if you need to remortgage

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Rising mortgage rates and disappearing deals could provide a shock to homeowners who come to remortgage in the remainder of 2022.

Mortgage rates are significantly higher than they were two years ago, meaning borrowers coming to the end of their fixed term may face higher costs when they switch. 

In addition, banks recently withdrew hundreds of deals in response to the rising base rate and wider economic uncertainty.

Here, we explain what's happening in the mortgage market and provide a step-by-step guide to getting a good deal when remortgaging.

What's happening to mortgage rates?

Mortgage rates are continuing to rise, with seven increases in the Bank of England's base rate resulting in higher costs for lenders and borrowers. The base rate is now 2.25%, having been just 0.1% in December 2021. 

These bate rate rises has been exacerbated by some of the UK's biggest lenders withdrawing their deals in the last couple of weeks, amid the fall-out from the government's mini-Budget.

All of this means that if you're coming to the end of your fixed term, it's likely that you'll need to pay a higher rate when you come to remortgage.

Data from Moneyfacts shows borrowers who took out a mortgage at 60% loan-to-value in October 2020 could get a rate of 1.1%. Two years on, the cheapest deals are priced around 5%.

Further rate rises could be set to follow, with the Bank of England indicating that it may need to increase the base rate again at its next meeting in early November.

How much impact higher rates have on your repayments will depend on the deal you're remortgaging from and to, what's happened to the value of your home, and the degree to which you've increased your equity (more on this later).

What to do if you need to remortgage

If you're coming to the end of your fixed term, you're likely to find that you've got fewer options than before. It's a volatile time for the mortgage market, with deals are being launched and withdrawn in the space of days. 

The best thing to do will depend on your situation:

  • I'm coming to the end of my fixed term: shop around for a new deal now. You can usually secure a new mortgage six months before the end of your current one. With rates continuing to rise, you might be able to make savings by acting quickly.
  • I've got more than six months to run on my fixed term: don't do anything for now. It's usually a bad idea to switch deals mid term, as your lender will likely impose significant charges for doing so. If you think switching early may make sense, take advice from a mortgage broker.
  • I'm on a tracker mortgage: trackers rise in line with the base rate, so it's likely you'll be paying much more than you were a few months ago. Whether it'll be a good idea to switch before the end of your term depends on the specifics of your current mortgage and your personal circumstances. Take advice from a broker.
  • I'm on a standard variable rate (SVR) mortgage: this is usually the most expensive type of mortgage. if you're able to switch to a fixed-rate deal, do so as soon as you can.

If you're worried about being able to make your mortgage payments, your lender may be able to offer you support. Take a look at our full guide for advice on your options.

7 steps to getting the right deal when remortgaging

Higher rates are becoming a fact of life, but there are some steps you can take to ensure you get the best possible deal when switching. Here are our top tips. 

1. Find out when your fixed term is coming to an end

Most homeowners have a fixed-rate mortgage. This means your rate and monthly repayments stay the same for a set amount of time, usually two or five years.

It's important to check when your fixed term is due to expire. If you don't remortgage by then, you'll be moved on to your lender's standard variable rate (SVR). 

SVRs are currently averaging well above 5%, so you could face much higher monthly repayments if you fail to switch. 

2. Don't remortgage mid-term

With rate rises likely to continue, it can be tempting to remortgage early to snag a deal before prices get even higher.

In most cases, however, this isn't the best idea. If you remortgage during your fixed term you'll need to pay an charges to your lender. This, when combined with arrangement fees for a new mortgage, will likely dwarf the benefits of switching. 

3. Find out your loan-to-value 

The monthly repayments you've been making may have moved you into a lower loan-to-value (LTV) bracket, which could help you get a cheaper rate. 

For example, if you took out a 90% mortgage two years ago, you'll now own more of the property, so you may be able to remortgage at 85% loan-to-value. 

You might also be able to benefit from rising house prices. If the value of your home has increased significantly, this could lower your LTV bracket. Lenders will usually conduct a remortgage valuation to determine the property's current value. 

To find out your current LTV, divide the amount you still owe by the amount you originally borrowed (or the amount the property is currently worth, if it has risen in value), and multiply by 100. 

So if you owe £125,000 of the £150,000 you originally borrowed, your calculation will be (125,000/150,000) x 100 = resulting in a LTV of 83%.

4. Get a quote from your lender 

Remortgaging with your current lender is called a product transfer. There are some benefits to doing this: you won't need a new credit check or a valuation, and you may be able to avoid expensive arrangement fees.

On the other hand, with dozens of lenders competing to offer the best mortgage deals, it's highly unlikely that your current one will give you the very cheapest rate. 

You should be able to find out your product transfer rate by logging in to your online mortgage account. 

If it's not there, be proactive and give your bank a call. If you wait to receive a letter from them, you might miss out on a better deal elsewhere. 

5. Do your research and get expert advice

You can usually arrange a new mortgage up to six months before the end of your fixed term. 

To get an idea of the best rates currently available, check out our story on the cheapest mortgage deals. For more tailored advice suited to your specific circumstances, speak to a mortgage broker. 

Mortgage deals currently have a shorter shelf-life than before, so if you find one you definitely want, it might be a good idea to secure it in advance.

6. Choose the right mortgage term 

Two and five-year fixes are the most common types of mortgage, though three, seven, 10 and even 15-year fixed terms are available. 

If you're choosing between two and five-year deals, there's very little difference between the best rates. 

This means it's best to opt for a term that suits your own circumstances. A two-year fix will give you flexibility to switch sooner if rates fall, but a five-year fix will protect you for longer if they continue to rise.

Think about your medium-term plans. If you're planning on staying put in your current home, a five-year fix will offer greater stability. If you might look to move, however, a two-year fix will offer flexibility and eliminate the possibility of incurring early repayment charges.

7. Keep an eye out for upfront fees

When comparing mortgage deals, don't just focus on the initial rate.

Upfront fees can have a significant impact on the overall amount you'll pay. Some mortgages are offered fee-free, while others come with fees well over £1,000. 

In some cases, a more expensive fee-free deal can be cheaper. For example, a deal at 3.5% with a £999 fee will cost you more overall than one at 3.6% with no fee.

This story was first published on 11 August, and has been updated since then with new rates. It was last updated on 10 October.



source https://www.which.co.uk/news/article/what-to-do-if-you-need-to-remortgage-aRlvK8e6LnxV
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