Why there has never been a better time to move your mortgage
The cost of just about everything seems to be increasing. Yet mortgage transaction rates are still close to their all-time low.
Experts say historically low interest rates mean you can offset increases in your bills and save hundreds, if not thousands, a year by changing your mortgage.
And now is the perfect time to do it.
Low rates: Experts say historically low interest rates mean you can offset increases in your bills and save hundreds – if not thousands – a year by changing your mortgage
Change and save
“In the coming months, household finances are expected to be strained by energy prices, food prices, as well as rising national insurance payments.
But, one area where many homeowners can save money each month is on their mortgage, ”says Will Rhind, head of advice at online mortgage provider Habito.
When you take out a mortgage you get a special low initial rate, often for a fixed term of two or five years, but once it expires, you are free to upgrade to a new offer.
This month, a record number of homeowners will see their fixed deals come to an end, according to broker L&C Mortgages, which estimates that £ 29 billion in mortgages need to be renewed.
The good news is that it’s now cheaper than ever for many borrowers to remortgage – and by moving your home loan, you could save more than enough to offset the expected annual increase of £ 139 in our energy bills as well. as other cost increases.
Mortgage rates have hit historic lows over the past year and remain among the lowest on record, with several lenders offering offers below 1%.
The best rates are available for people who have a larger interest in their home and take out a longer-term fixed mortgage.
For example, when a homeowner with a 40% down payment and a mortgage of £ 150,000 took out a five-year fixed mortgage in 2016, he would have paid interest of 1.89%. But if they renew now, they could pay as little as 0.94 percent.
This would see their monthly repayments drop from £ 751 to £ 686, saving them £ 780 per year, more than five times the extra they will pay on their energy bills.
The same homeowner who takes out a two-year fixed mortgage would pay just 0.84% interest now, down from 1.19% two years ago in 2019.
The change would save them £ 24 per month or £ 288 per year, covering twice the increase in energy costs.
But someone with a 20% deposit and a £ 150,000 mortgage would have paid 1.45% for a two-year fixed mortgage in 2019 and only see that 1.42% drop today – a saving annual fee of just £ 24 per year.
Avoid high rates
Still, it’s still worth changing the deal instead of letting your mortgage switch to the so-called Variable Standard Rate (SVR), the expensive default rate that lenders charge after the deal expires.
Up to one in four homeowners pays an expensive SVR.
It costs them on average £ 2,540 more per year than those who opt for the best deals, according to L&C analysis.
A homeowner with a £ 150,000 mortgage on their £ 250,000 home typically pays an extra £ 212 per month by staying on the SVR instead of finding a cheaper two-year fixed contract.
The best mortgage rates are available for people who have a larger stake in their home and are on a longer term fixed contract.
Over one year, that’s £ 2,544, enough to cover 18 times the expected average annual increase of £ 139 in energy bills.
You’ll save around £ 400 more now by disabling SVR than last year, as the offers on offer are very competitive, while the SVR remains around 3.82% on average.
“Competition from lenders is fierce and this has helped drive mortgage rates down over the past 12 months.
“This is great news for mortgage borrowers nearing the end of a deal, but it also underscores how important it is to shop around,” says L&C broker David Hollingworth.
The time has come
Mortgage deals may be competitive now, but it might not last long. Last month, the Bank of England warned that it may soon raise the base rate to tackle rising inflation, which peaked in nine years in August, without the help of soaring energy prices.
Any increase in the base rate would drive up mortgage costs and likely coincide with an increase in the cost of living, as the prices of everyday goods like fuel and food are also expected to rise.
Switching to a fixed contract now not only guarantees low rates, but also avoids the unpredictability of the cost of your mortgage over the next few years.
“Borrowers seem to prefer fixed rate mortgages, perhaps because of the budgeting ability and the protection against future interest rate volatility they may offer,” says Darren Cook, independent financial analysts Moneyfacts.
Know the fees
“If your mortgage rate has already expired or will expire in the next six months, now is the time to shop around for a new contract,” advises Will Rhind.
Arrange for a change after your fixed contract is over, so you don’t get charged for the change of lender.
A 5% prepayment charge on a £ 150,000 mortgage is £ 7,500, so the penalty can wipe out savings from lower rates.
Some borrowers can still save by switching to a much lower rate mid-term. Anyone who is re-mortgaged will also have to pay an arrangement fee of between £ 750 and £ 1,500. A broker can advise you if you can save after factoring in the fees.
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