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The UK’s base rate is currently 0.5%, and it’s fair to say we all expect to see further increases over the year. At least 1% by the end of 2022 is likely (based on two more base rate increases, although some experts think it could already reach 1.25% by the end of 2022). The Bank of England has already announced that it will likely set the base rate at 1.25% by the middle of next year.
As interest rates rise, borrowing becomes more expensive, and many individuals are evaluating their mortgages to ensure they have the best deal. Increasingly, we are seeing a number of borrowers consider breaking their mortgages and switching over to better deals.
Many borrowers will consider breaking a mortgage if doing so means they can get a better finance package by negotiating a new deal with another lender. Many people will break their current mortgage to secure longer-term fixed products that will mitigate some of the financial impact of the base rate increases on their monthly repayments.
If you are thinking about breaking a mortgage, here are some considerations to bear in mind:
If you want to break your mortgage in search of more advantageous, long-term fixed rates, it is crucial to know upfront what this will cost. There’s no way for us to outline what these costs can be as every mortgage is different. Early repayment fees can be standard, but you might have a mortgage that does not entail these. If so, breaking a mortgage may be a very interesting option from a cost perspective if you can get better rates with another lender.
Enness will be able to talk you through any potential fees associated with breaking your present mortgage if any apply. At the same time, your broker will shine a light on what rates are likely to be available to you from other lenders.
One of the first things many borrowers do when they think about breaking their mortgage is to talk to their current lender about their plans and motivations. Lenders won’t penalise you for looking at other options, but this approach does mean that you have put all your cards on the table.
Working with a broker to identify your options and secure other offers is usually a better course of action. In this way, your finance broker can negotiate rates with new lenders, but you still leave the door open for Enness to renegotiate with your present lender. If your current lender won’t match a better offer, you will still have a new mortgage you are happy to pursue, rather than finding yourself rushing to find a solution.
Just because you already have a mortgage and you’re not moving house, breaking a mortgage and getting a new one still requires time. A new lender will still need to underwrite your loan and assess your suitability for the new mortgage, and you will need to ensure you have time for your broker to negotiate a new deal in good time. This is especially important if your fixed-rate term is coming to an end.
Enness can help you source and negotiate new mortgage offers very quickly, but it’s always prudent to get in touch as soon as possible. Many borrowers are considering breaking their mortgage at the moment, and the faster you can get the process started, the quicker you will have your new mortgage completed.
With interest rates on the rise, it can be easy to assume that there aren't great deals on the market. While the historically low rates are now a thing of the past, the UK is lucky to have one of the most competitive mortgage markets in the world. With so many lenders competing for business, there is still lots of competition between lenders keen to attract the ‘best’ borrowers. If you are a high-net-worth individual or you have significant assets, Enness will likely be able to get some very interesting offers. Enness will help you find the best deal and go straight to the best source of finance – even if the lender that will offer this doesn’t publicise its services or only accepts borrowers through introductions.
An increase in the base rate also affects anyone thinking of buying a property. Organising your mortgage when the interest rates are as low as possible (vs waiting when they are likely to be higher considering the current probability of this) is likely to be the best course of action.
Understanding your options is also critical here as many factors are at play. You may prefer to lock in a slightly higher fixed-rate mortgage for a longer term in the present situation. Equally, you might be happy to go with a lower rate for a shorter time (2 years, for example), if the rates are attractive and you think the savings merit it, especially knowing you can break the mortgage and get a new one, although here, negotiating no early repayment fees (ERCs) could be prudent.
There is never a right or wrong answer when it comes to mortgages. The best mortgage for you will depend on your finances, plans for your property and what you are most comfortable with. Whatever your plans, your broker will be on hand to talk you through the possibilities and explore what the costs will look like for each scenario so you can make an informed choice.