Interest rates have increased over the last year as the Bank of England (BoE) tries to slow the pace of inflation. If your current mortgage deal has ended or expires soon, you may be wondering if you should search for a new deal right away or wait.
It’s estimated that around 1.4 million fixed-rate mortgages will end this year. The interest rate offered on a new deal is very unlikely to be as competitive as a deal secured two or more years ago.
Indeed, according to data from Uswitch, more than half of fixed-rate mortgages that are set to be renewed this year were fixed at interest rates below 2%. Homeowners searching for a new deal will struggle to find a lender with similar rates today.
So, if you need to remortgag
e your home, you have a choice – do you remortgage straightaway or wait to see if interest rates start to fall later this year?
Read on to discover the pros and cons of taking out a new mortgage in 2023.
3 valuable benefits of remortgaging now
1. You may be able to access an interest rate lower than the SVR
When your current mortgage deal ends, you’ll usually be moved on to your lender’s standard variable rate (SVR). This rate isn’t usually competitive and could mean you pay thousands of pounds more each year than you need to.
As a result, searching for a new deal could save you money.
The average SVR in the UK, according to Uswitch, was 7.75% as of May 2023. Many factors affect the interest rate a lender will offer you. However, if you’re remortgaging, you could secure a better rate than the SVR.
2. You may benefit if interest rates rise further
The BoE has increased the base interest rate several times over the last 18 months. In November 2021, the base rate was just 0.1%. As of May 2023, it is 4.5%.
As inflation remains high, the BoE may choose to raise the base rate again. If you haven’t remortgaged and are paying your lender’s SVR, a rate rise could affect your repayments.
When taking out a new mortgage deal, if you choose a fixed-rate option, the interest rate you pay will be fixed for a defined period, often two, three, or five years. So, by remortgaging you could protect yourself from future rate rises and save money.
3. You can fix your payments to provide certainty
As well as potentially saving money, taking out a new fixed-rate mortgage deal could also provide you with peace of mind. For some homeowners, knowing what their repayments will be each month is important, and could allow them to budget more effectively.
3 potential drawbacks of remortgaging now
1. You won’t benefit if interest rates fall
While interest rates have risen recently, there’s no guarantee that they will continue to do so. The BoE could also choose to cut the base rate.
If this happened, you may not benefit if you have already remortgaged, especially if you’ve chosen a fixed-rate option. So, if you think interest rates could fall, waiting to remortgage may make sense for you.
2. You may not have the flexibility you want
When you’re paying an SVR, you will usually have more flexibility if you want to make overpayments. So, considering your goals is essential before taking out a mortgage deal.
When you have a mortgage deal in place, you can usually make some overpayments but may be restricted. For example, some lenders will allow you to overpay 10% of the outstanding mortgage each year before you face additional charges.
Whether you want to make regular overpayments or pay off a lump sum, weigh up the potential costs of remaining on your lender’s SVR and taking out a new deal first.
3. You may pay a mortgage arrangement fee
If you want to take out a new mortgage deal, you should be aware that you may need to pay a mortgage arrangement fee, particularly if you want to access a lower interest rate.
A mortgage broker can help you understand your options
If your mortgage deal is ending this year, it’s crucial to weigh up your choices. There isn’t a solution that suits every homeowner, so take time to think about what’s important to you.
A mortgage broker can help you go through the different options and understand what they’d mean for your finances. This can allow you to choose a mortgage that’s right for you, giving you confidence for the future.
If you’d like to talk to one of our team, please get in touch.
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
Approver Quilter Financial Services Limited & Quilter Mortgage Planning Limited. 09/06/2023.