Mortgage rates rose significantly last year, and with the Bank of England (BoE) expected to increase the base rate again, mortgages are likely to become more expensive in 2023. So while mortgages are more costly than they have been in the recent past, how can any buyers or mortgage holders needing to get a high-value borrow or refinance get the best deal this year?
The mortgage market is changing rapidly, and the best products and most competitive lenders change regularly – even from week to week, so getting personalised advice from a broker is essential.
We recommend that anyone needing to refinance in 2023 gets advice on products and options earlier than necessary in a low-interest rate environment. Practically, 8-9 months in advance of your term ending is ideal for an initial discussion. This timetable would make anyone with a fixed-rate mortgage expiring in the summer prudent to explore refinancing options now - there remains time to do so if you still need to start the process. ONS data points to the number of fixed-rate deals coming to an end in 2023 and peaking in June. If your rate expires around that time, we advise you to move as quickly as possible to explore refinancing options if you haven't already, to ensure you aren't caught up in the volume of other mortgage holders looking to refinance by the summer, which will happen in the coming weeks.
Anyone coming to the end of a fixed-rate mortgage will want to explore all the options for refinancing. As the lending market changes, the cheapest products vary quickly, so understanding what's available to you is critical. In some cases, longer-term fixed rates (usually 5-year fixed) can be more competitive than shorter-term fixed rates and will give more certainty. We will be able to explain all your options to you.
Outright product swaps are also a possibility. Tracker and variable-rate mortgages are similar lending products, but each has specific advantages and drawbacks, for example. Tracker mortgages follow the BoE base rate with the lender's interest rate added on top. As the base rate rises or falls, what you are liable to pay will change accordingly. With a variable-rate mortgage, the lender's interest rate is fixed upfront.
Tracker mortgages can present more risk because there is effectively no cap on them. This means that while they are typically cheaper than their variable-rate counterparts, they offer less certainty in rising interest rate environments. As a result, they can be better lending products for individuals that can easily absorb this risk because they have significant disposable income – high-net-worth individuals, for example.
The BoE is expected to raise the base rate again in February, meaning tracker rates will be immediately affected. However, they may bring long-term savings considering that the base rate is expected to peak and then drop this year. Currently, fixed-rate mortgages are generally falling in price, offering borrowers more certainty, albeit at a slightly higher rate over the term of the loan. As with any mortgage, there are benefits and drawbacks of both variable-rate and tracker products, and you should seek expert advice to understand what will be best for you.
Usually, borrowers want to maximise their loan-to-value (LTV) ratio, getting a mortgage as much as possible. However, when it comes to getting the best mortgage rate, there is sometimes a balance to be struck between putting forward a larger deposit at a lower rate, or paying a higher interest rate with a larger loan.
What will be the ideal scenario for one borrower will not be the right solution for another. The best package will depend on your financing requirements, the type of mortgage you want (i.e., interest only, capital and interest), cash flow, wider asset base and personal situation (i.e., if you are coming up to retirement age).
We will explore all the mortgages available to you but also run simulations so you can understand the concrete savings you may stand to make by putting forward a larger deposit, so you can compare with a scenario in which you maximise borrowing at a potentially higher rate over the mortgage term.
At the tail end of 2022, lenders raised their mortgage rates significantly. This was in line with base rate increases but also because they were struggling to keep up with refinancing volumes and affordability analysis, as there was so much uncertainty surrounding the economy due to geopolitical influences and the fallout of Liz Truss' mini-budget. As a result, some kept the pricing of their mortgage products high to allow them a 'buffer' on the margins of the offers they were making in case the volatility continued.
At the end of 2022, there was a slight rebalancing which led to a reduction of mortgage costs, which continued into 2023. In the first week of January, some lenders reduced their products by as much as 1.3 percentage points. For large mortgages, even relatively small drops in interest rates significantly impact what you will pay over the term, so these are good savings to be made in the current market, as long as you can access the lenders that offer them.
As some lenders have reduced their rates, others will be looking at where they stand and if they need to start to be more competitive with their pricing. As a result, we expect other lenders to follow suit and adapt their rates to capture more business and stay competitive.
If you are looking to remortgage or buy a property, shopping the market makes sense now more than ever. Through Enness, you can access all the lenders on the market, including the smaller players whose offerings are not widely publicised or via lenders that require introductions, like private banks. We will also be able to negotiate a mortgage for you, designing your package to ensure you get the most competitive rate in a way that is tailored to your personal situation.
This guide is for information and illustrative purposes only and nothing contain within should be construed as advice or a recommendation.
Financing options available to you will depend on your requirements and circumstances at the time. Any changes in your circumstances, any known likely changes, or omissions in the information you provide can affect the suitability of the options available to you. These should be communicated to us as early as possible.
If you are considering securing debts against your main home, such as for debt consolidation purposes, please think carefully about this and consider all other options available to you.
Your home may be repossessed if you do not keep us repayments on your mortgage or other debts secured on it.