2015 introduced a lot of change to the mortgage market, leaving everyone anticipating what the New Year will bring. Looming rate rises are yet to appear, so while rates remain incredibly low, borrowers want to know whether a remortgage is necessary to prepare for the end of their fixed term. The base rate currently stands at a long-term low of 0.5%, stirring competition between lenders to offer the lowest fixed rate deals. Some have been reducing penalties for overpayments or early repayments, and others seeking the upper hand through lower fees and higher loan to value and loan to income ratios. In short, preventing borrowers from moving elsewhere has become a resolution for every lender.
Before the financial crisis, homeowners often found themselves moved onto a standard variable rate (SVR) at the end of their term; a far costlier solution than the discounted offers and rates available on fixed terms. Nowadays, however, lenders are increasingly forthcoming with their assistance and are actively keeping their customers informed – something we at Enness always strive to do.
Nationwide provides a 6 and 3 month reminder before a deal is set to end, as well as introducing a loyalty initiative for residential customers, monitoring high street switch rates and committing to 0.1% below the lowest rival rate. At Enness, we will notify our clients on a monthly basis leading up to a product expiry date to avoid the increase in monthly payments that rolling onto the SVR will cause.
So you may be wondering how a remortgage can benefit you, and whether you can simply extend the term with your existing lender – which naturally seems like the easier option to take.
We predicted the remortgage trend after new affordability rules were introduced in the 2014 Mortgage Market Review, which saw mortgage holders preferring their existing lender in an attempt to avoid the inconvenience of tougher assessments. However, as lenders continue to help customers prepare for change, it has become easier to switch deals and choose a new rate (especially if it’s for the same property with no additional borrowing). Even so, brokers have warned that choosing a “hassle free” option without researching the wider market can cause problems – especially for larger mortgages – where you may find yourself locked into an unnecessarily high rate.
In terms of the deals currently available, tempting 2 and 5 year fixed offers are racing around the market. However, there are pitfalls to be wary of. It’s important to remember that generally the lower the rate, the higher the fee, and that you are also likely to need a lot of equity to access the best deals available. Tougher lending criteria means that it can take more than 2 months to remortgage, so preparing early is essential to avoid missing the boat. Some of the cheapest products are already disappearing from the market, so as we’ve said before, the message is simple: fix as you’re able to, or face higher rates in the future.
While fluctuating interest rates remain uncertain, there are many beneficial alternatives that you may not have considered. Lifetime tracker mortgages, for example, track the base rate by a fixed amount (usually with unlimited overpayments with no early repayment fees) and can ultimately save a small fortune.
Compared to predictions at the end of 2015, some experts now believe there will be no UK rate rise for the majority of the year, particularly as plunging oil prices could stop the Bank of England from raising rates, while they remain far from the 2% inflation rate target. It’s not only the Bank of England focusing on rate changes, however, as swap rates and general market conditions are already impacting the mortgage market and pushing rates upward.
Essentially, regardless of the product you opt for, if you’re currently on a fixed rate deal then you will need to find out when the current term ends and allow for at least 2-3 months to find a better deal. We can help you ensure you avoid the certain rate increase, whenever it may occur, to prepare for when your current deal runs out.
We have contacts with every type of lender and a wealth of knowledge of market changes. Whether you wish to find out more or gain some free tailored advice – we are always here to help. Feel free to contact one of our expert advisors for a personal consultation anytime.