Is it time to remortgage your home?

Banks are already starting to prepare for higher interest rates, says Alex Rankine. Should you, too?

Mortgage rates are rising. Finance website Moneyfacts reports that average two- and five-year fixed rates stood at 2.29% and 2.59% respectively at the start of November. That is a small increase compared to early October and marks the first monthly rise since June. Although the Bank of England held interest rates at 0.1% last week, lenders are positioning themselves for rate rises ahead. Moneyfacts says that the number of deals offering rates below 1% has also fallen, from 131 in early October to 30 by 1 November. 

When they do come, Bank of England interest-rate rises will most immediately hit the 850,000 people on tracker mortgages, say Fiona Parker, Amelia Murray and Helena Kelly in the Daily Mail. A rise in the base rate to 0.75% would cost a borrower with a £150,000 25-year tracker loan an extra £600 in annual mortgage payments, says AJ Bell. The 1.1 million households on standard variable-rate (SVR) mortgages will also feel the heat from an interest rate rise. 

Staying on your lender’s SVR after the fixed deal is up can still make sense for some people, say Rachel Mortimer and Will Kirkman in The Daily Telegraph. “If you have a mortgage that is relatively small, say under £50,000, it might not be worth remortgaging if the new mortgage fees outweigh the potential savings.” Yet for most borrowers, fixed-rate mortgages are the clear choice. Today 81% of the mortgage stock is fixed, up from 41% in the late 2000s. For new loans the figure is even higher: over 90% of new mortgages are now fixed-rate, according to data from UK Finance; 46% are fixed for five years, and 45% for two years.  

Beware steep exit fees 

With rates heading up, some are opting to switch now to lock in a better rate, even if they have to pay steep exit charges to do so. Aaron Strutt of Trinity Financial tells the Financial Times that “one client recently decided to pay £12,000 in exit fees on two five-year mortgages... to lock in a low rate over ten years”. Rising property values also mean some homeowners are now eligible for lower rates. But early repayment charges, typically about 5% of the loan, are only worth paying if you are desperate to escape your current deal.  

If you don’t want to pay exit charges there are other things you can do. Kate Palmer and Ali Hussain in The Times suggest overpaying the mortgage: “Even a small amount every month can make a dent over the long term, reducing the amount that you will need to borrow when you next come to remortgage”. That will also help you get a better rate when you do. For those with six months or less left on their current deal it is time to go shopping, either by comparing online or contacting a mortgage broker. Lenders will typically allow you to lock in a rate three to six months ahead. 

While lenders have been withdrawing the best rates – especially ultra-low ones offered to people with large deposits – there are still good deals on offer, says Palmer. You can find a 0.88% two-year fix with a £1,999 fee from Cumberland Building Society, while Lloyds Bank offers a 1.07% five-year fix with a £1,499 fee for re-mortgagers. Factor the fees into your calculation when deciding what deal is right for you. Indeed, those coming off two- and five-year fixed rates now are in luck, says Helen Crane for This Is Money. In November 2019 the average borrower paid 2.45% for a two-year fix, versus 2.29% now. “Those who fixed for five years in 2016, when rates were slightly higher still, could also find a better deal.” 

Recommended

Coronavirus has had less of an impact on UK property than you might think
Property

Coronavirus has had less of an impact on UK property than you might think

The UK property market looked to have been turned upside-down as people abandoned city flats to work from more spacious homes in the country, while of…
29 Nov 2021
Index-linked bonds could prove a costly inflation hedge
Government bonds

Index-linked bonds could prove a costly inflation hedge

Index-linked bonds are designed to keep pace with inflation, but at these prices you are locking in a loss
29 Nov 2021
Three safe bets on the growing online gambling sector
Share tips

Three safe bets on the growing online gambling sector

Professional investor Aaron Fischer, creator of the Fischer Sports Betting and iGaming ETF, picks three of his favourite online gambling stocks.
29 Nov 2021
Why Britain’s supermarket chains should take over Europe
Retail stocks

Why Britain’s supermarket chains should take over Europe

Britain’s supermarkets should not sit back and wait for a takeover bid, says Matthew Lynn. They should launch their own for the continent’s chains.
28 Nov 2021

Most Popular

Don’t worry about the global population explosion – it’s unlikely to happen
Investment strategy

Don’t worry about the global population explosion – it’s unlikely to happen

One of the many things we are taught to worry about is the fast-rising global population. But in fact, says Merryn Somerset Webb, the opposite is tru…
15 Nov 2021
Four of the best new investment trust listings
Investment trusts

Four of the best new investment trust listings

Diversify your portfolio and benefit from rising dividends with these four new investment trusts coming to the market soon.
15 Nov 2021
Making sense of the new minimum pension age rules
Pensions

Making sense of the new minimum pension age rules

The rules surrounding the minimum age at which you can start tapping into your retirement savings have been tweaked, but are still confusing. David Pr…
23 Nov 2021