Fixed rate Remortgages
As talk of an interest rate rise coming sooner rather than later increases, mortgage borrowers may be starting to worry. Interest rates on home loans tend to go up before the base rate and some lenders have already increased the cost of their fixed-rate mortgages following signals from the Bank of England that a rise could happen as early as this year. For some borrowers, now might be a good time to consider remortgaging.
Is it worth moving if I'm on a low standard variable rate?
Many borrowers have benefited from mortgage contracts that were written when a 0.5% base rate seemed as likely as a Canadian heading up the Bank of England, and lenders, including Nationwide and Cheltenham & Gloucester, were willing to commit to charging just 2% on top. Instead of looking to switch the minute their fixed or tracker rates ended, some of these customers have waited and enjoyed a rate of 2.5% for several years.
"A key question for someone on a low standard variable rate or tracker is going to be how flexible their monthly budget is, " says David Hollingworth of mortgage brokers London & Country. "Borrowers should see what the difference would be in their monthly repayments if rates went up by 0.5% or 1%. If they start to look difficult to deal with then it might be worth fixing now." On a £120, 000 mortgage at 2.5%, a 1% increase will add around £70 to monthly repayments. However, as Hollingworth points out, talk has been of rates rising in "baby steps" so it could take some time to get to that level.
Rates on two-year fixes are below 2.5%, but on longer-term deals they are around 3% – Tesco, for example, has a rate of 2.99% for borrowers with a 30% deposit. So in the short term at least, you will be increasing your monthly payments. On that £120, 000 the difference would be around £35. "The crux of the issue is how much the remortgage is how important it is to save money now versus saving money in the future and protecting yourself against an increase."
If you do think a fix is in order, rates are almost as low as they have ever been. "Any borrowers on low SVR mortgages should not overlook the current fixed rates on offer, " says Stuart Gregory, the managing director of Lentune Mortgage Consultancy. "It would be best for them to see if they qualify for a remortgage first of all under the new post-MMR [mortgage market review] regime, and then to compare – could they afford to take a chance on future interest rates?"
Am I stuck if I'm currently locked in to a deal?
If you are locked in to a fixed-rate or tracker mortgage with exit charges, you do not have to wait until it has come to an end to take action. You can start shopping around before the end of your deal, and you may be able to grab a deal three months before your lock-in period finishes. Big lenders like Santander, Halifax and Nationwide will all let existing customers sign up to a new mortgage up to three months before their existing deal ends. If your fixed-rate finishes in September and you are worried the best deals will be gone by then, you can book the new mortgage now.
Will I have to pay fees if I switch lender?
It is highly likely that you will face some kind of cost for taking out a new mortgage. If you are switching lending, the new bank or building society will want a valuation of your property and need legal work to be done to make sure it is taking on a good risk. This can run to several hundreds of pounds.
However, some lenders do offer deals to attract switchers. "Remortgagers can access special deals, with many lenders throwing in a free house valuation or reduced legal fees, " says Brian Murphy, head of lending at Mortgage Advice Bureau. "Some also offer no arrangement fees, although consumers should be warned that paying nothing in upfront fees will often be reflected in a higher monthly rate."
Even if you decide to stay with the same lender, just moving on to a new deal, you will probably face a product fee on the lowest rates. Tesco's 2.99% five-year fixed-rate for example comes with an upfront fee of £1, 495. On a small mortgage you will be better off paying less in fees and going for a higher rate.
What if my house is worth less than when I got the mortgage?
Despite months of rising house prices in some parts of the country homes are worth less than when the property market peaked in 2007, and if you bought around that time your house could have fallen in value. This should not hamper your chances of getting a new mortgage if you had a reasonable deposit at the time. Your equity may have shrunk but you will still be able to shop around for a new loan.
Only one lender, Aldermore, is using the Help to Buy mortgage guarantee scheme to offer 95% deals to remortgagers but a there are a few other lenders willing to offer loans at that level. Newcastle Building Society offers a two-year fixed-rate at 5.89% with a £199 fee and free valuation and legal work, and a five-year fix at 5.99%. Leeds Building Society's five-year fixed-rate is 5.19% with a £999 fee or 5.69% with a £199 fee and you get cash towards the valuation and legal work.
If, however, your stake in the property has completely vanished – and that is possible if you bought with a loan of 95% or even more – you will struggle to find a new lender willing to take you on. Your existing lender should offer you the chance to switch to another of its deals though, so you can still fix if you want to.
"If borrowers are looking to remortgage their home but they have lost equity in the past five years, always start by talking to your current lender, " says Gregory. "They may have deals available that you can switch to. This is called a product transfer, and is normally a straightforward process."
What if I earn less than when I got the mortgage?
The new mortgage lending rules that were introduced in April mean that banks and building societies need to carry out rigorous affordability checks before granting mortgages, and if your circumstances have changed since you bought you may fall foul of these. Again, your existing lender is allowed to offer a better deal without making you go through the checks, so if you have recently become self-employed, seen your earnings cut, or taken on a new expense like childcare, it might be your best bet.
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I agree with Michael Cheng. If you have a great credit score, stable, verifiable income, verifiable cash on hand or assets, you are a dream client. By comparison shopping, you will be able to obtain a Loan Estimate from at least three different types of lenders: Talk with the mortgage department of where you currently bank. You already have a banking relationship with them. This is a good place to start. Next, apply with a local, licensed non-bank mortgage lender. Somebody located in the town in which you live. Last, apply with a local mortgage broker.