In the first three months of this year, 353,000 fixed-rate mortgages came up for renewal, with a further 371,000 coming to an end before July, according to calculations from the Office for National Statistics (ONS).
The majority of these fixed rates were set at interest below 2% – but current mortgages are priced 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.
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?
All of this means that if you're coming to the end of your fixed-term mortgage, it's likely your rate will be higher when you come to remortgage.
Data from Moneyfacts shows borrowers who took out a mortgage at 60% loan-to-value in November 2020 could get a rate of 1.1%. Whereas now, the cheapest interest rate comes in at just below 4% for a five-year fix.
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 how much you've increased your equity (more on this later).
The graph below shows how mortgage rates, according to Moneyfacts, have changed significantly over the past 12 months. We are now past the peak of last November, but the subsequent rate drop has plateaued.
Find out more:7 steps to getting the right deal when remortgaging
Higher mortgage rates are - at the moment - 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
Being on an SVR is usually more expensive, and leaves you exposed to rate increases at any time, so you could face much higher monthly repayments if you fail to switch. The average SVR offered by the UK's main mortgage providers is 7.12% - the highest it's been since April 2008, according to Moneyfacts.
2. Don't remortgage mid-term
With high rates likely to remain in the short term, it can be tempting to remortgage early to try and 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 charges to your lender. This, when combined with arrangement fees for a new mortgage, will likely override any financial 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.
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%.
Find out more:4. Get a quote from your lender
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, you might miss out on a better deal elsewhere.
Find out more: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.
Mortgage deals currently have a shorter shelf-life than before, with the best deals sometimes only staying on the market for a matter of days. 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 and 10-year fixed terms are available, too.
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.
Find out more: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.
Find out more:What to do if you can't get approved for a mortgage
You may find it a struggle to get accepted for a new deal when you come to remortgage – this will usually be the case if you fail stricter affordability tests brought in after you bought your home.
Get financial advice
Speaking to a qualified adviser can help you understand why you may have been turned down for your mortgage, and help you plan what to do to get accepted.
Try another provider
There's no guarantee you'll get the best deal with your current provider, so shop around – just make sure you don't end up with multiple 'hard' credit checks, as this could negatively impact your credit score.
Find out more:Launch an appeal
If you've spoken to an adviser, and still can't decipher why your application was rejected, you can appeal the provider's decision.
This process tends to be complex and may not be the best course of action unless there was an error on your application. Otherwise, an appeal is unlikely to change the outcome of the lender's decision. You should therefore only consider this option if you know there was important information that wasn't considered by your lender.
Which? Money Podcast: mortgage rates explained
On an episode of the Which? Money Podcast, we explain what higher rates mean for people looking to remortgage or buy a home.
You can listen to the episode below.
This story was first published on 11 August 2022, and has been updated multiple times since then. It was last updated on 18 April 2023.
source https://www.which.co.uk/news/article/what-to-do-if-you-need-to-remortgage-aRlvK8e6LnxV