This week sees the first mortgage repayments made by UK consumers under the new Bank of England interest rate of 0.5%. The increase, from 0.25%, was the first rise in over a decade and will mean monthly mortgage payments just got more expensive for 43% of UK mortgage holders.
The rise is set to cost an average household on a variable mortgage an extra £20 a month, which over 12 months amounts to £240 a year – a pretty unwelcome expense coming ahead of Christmas and New Year.
But, if you are on your lender’s standard variable rate, you should be able to switch on to a fixed rate and save thousands in the process (before the rate rise HSBC estimated that by switching to a fixed rate, households could save £4,000 a year!).
Here’s our 7 ways to get the best remortgage deal:
Timing is everything
It can take time to switch on to a new mortgage rate so you should start looking roughly 14 weeks to three months before your current rate expires. Planning ahead will save you being automatically transferred onto a more expensive variable rate mortgage. Likewise, if you switch too soon, some mortgages will include an early repayment charge. This charge can be as much as 5% of your outstanding loan, which can add up to several thousands of pounds. If there is a charge, arrange for the remortgage to start the day after the penalty period ends on your current deal.
Don’t be drawn into the lowest rate
The lowest interest rates and seemingly cheapest deals are used by banks and lenders to market to customers, but they typically have larger fees – some over £1,000, which increase the overall price of the mortgage. It is better to look at the total cost – taking into account any associated fees and special offers, as well as the rate, to get the cheapest deal overall.
Look out for freebies (and what they really cost)
Many mortgages now come with free valuations, no legal fees, the promise of cashback and more. But these usually come with higher interest rates – so they could still work out as more expensive overall compared to a deal that has a lower rate but higher fees and no free services or cashback rewards. Be savvy and look at the cost of legal fees vs cash-back offers to see which is the bigger incentive. With some cashback offers paying as much as £500, you could be better off taking the money and still spending on associated fees.
In this market, don’t be scared to fix
Two-year fixes usually offer the lowest fixed interest rates, but after the bank of England increased its base rate and with more rate rises anticipated in 2018, many people are now looking to lock into the current low fixed rates for longer. Opting for a 5-year fixed rate mortgage could be a good strategy to keep your mortgage payments consistently low and avoid any further rate surprises until 2022!
Hold off on applying for a loan or credit card
Any lender will need to know that you’re sensible with your money and can afford to make repayments on your mortgage. So, in the weeks and months running up to applying to a remortgage, it makes sense to manage any existing debts and hold off applying for extra credit cards or loans, to get the best credit score and unlock the best mortgage deal for your needs.
Beware of the loyalty trap
Rather than staying with your incumbent lender or current bank account provider, it pays to shop around. There are over 80 lenders in the UK and many offer lower rates for new customers than they do for existing customers. If you do find another lender with a better deal, don’t fear the break-up admin. Your new lender will appoint solicitors and talk to the old lender to switch your mortgage for you at no extra cost.
Be smart with your time and your money – use a (free) broker
A broker can help you navigate the mortgage market minefield, make the application for you and chase the lender on your behalf – saving you hours of time and heaps money. Brokers usually charge £200 – £400 in fees, but there are brokers out there, including Habito, that offer their services for free and without the need to take any time off work to meet face to face. Take up the offer of impartial online mortgage advice – it doesn’t need to cost you a thing.
So what are you waiting for?
It’s more important than ever to secure the best deal you possibly can on your mortgage and we have invested in the technology to do it record time and with minimal form filling. Get in touch before December’s mortgage repayment comes out of your current account!