Recent data from the Council of Mortgage Lenders shows more borrowers are making smart moves on mortgage deals. With mortgages continuing to sit at historically low levels, remortgaging in November was up 13% from the year before.
If you’re thinking of doing the same, you might want to get a move on. The best deals may not be around for long.
A study by TSB Bank, found most people believe they can save £49 every month on average by remortgaging. In fact, homeowners could save on average almost £100 a month on their repayments by remortgaging. Over the life of a 3-year fixed rate mortgage, that’s £3,500
We could see interest rates rise later in 2017 or the start of 2018 if the inflation we wrote about in our recent piece continues to rise (click here).
How mortgage deals work
When you take out a mortgage, you’ll probably fix your rate or track the Bank of England’s base rate plus a certain percentage for two or three years.
At the end of this period, your mortgage will move to the lender’s Standard Variable Rate. It will be higher than the rate you have been paying. It is also subject to increases at any time, even if the base rate doesn’t change.
For example, Santander is offering a two-year fixed rate mortgage at 1.23% if you’re borrowing 60% of your home’s value. Their Standard Variable Rate is 4.49%. That’s a monthly repayment change from £581 to £833 a month on a 25-year term £150,000 mortgage.
With inflation moving upwards, reducing your mortgage payment can help absorb the higher cost of living or pay down other debts. You could invest back into your home with improvements or pay for a holiday.
You may still be able to switch your current mortgage with your lender, or change providers for a better rate. You’ll face early repayment charges that can be as much as 5% of your outstanding loan could, so you need calculate it is worthwhile first.
Why act now
Interest rates are low and unlikely to go lower. But the Bank of England’s base rate is only part of the equation for lenders to calculate their rates.
Lenders’ mortgage deals are also based on what it costs them to borrow from each other. These are called swap rates. They are benchmarked against the London Interbank Offered Rate (LIBOR). LIBOR reflects the strength of all banks. Banks with less liquidity will pay a higher rate, so not all banks get the same deal.
The rates that banks lend to each other rose in December. This led to some lenders replacing their best fixed rate deals with higher priced loans before Christmas. They have stabilised since, but uncertainty from Brexit, inflation and the UK economy means they could rise again soon. That means withdrawal of more deals.
If you would like to help to find the best remortgaging deals, or if you just want us to calculate how much you can save, get in touch today.
Your home may be at risk if you do not keep up with the repayments for a loan or mortgage secured on your property.