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Why you should remortgage now

Category: Mortgages
Author: Nigel Woollsey
Updated: 11/01/2019

In the face of possible economic uncertainty, the current high in remortgage applications shows no signs of slowing. Some homeowners, concerned that 2019 might see unpredictable rises in the Bank of England's base rate, are moving quickly to lock themselves into remortgage deals while interest rates remain at historic lows.

But when is it a good time to look at remortgaging?

At a glance:
  • Remortgaging is when you take out a new mortgage to replace an existing arrangement for example at the end of an initial fixed or discounted rate period.
  • In times of economic uncertainty, moving to a fixed rate for a set period is a good way of ensuring your monthly payments stay the same for a specified period.
  • It is important to look at the financial benefits and drawbacks of moving to a new deal – especially if there is a penalty for leaving your current deal early.

What is remortgaging?

Simply put, remortgaging is taking out a new mortgage on your home to either replace an existing mortgage. Remortgaging can be beneficial if you are currently on a lender's standard variable rate (SVR), a fixed or discounted variable rate deal that is about to end. This enables you the opportunity to take advantage of a new mortgage with better features, the security of fixed repayments or to take advantage of lower interest rates than you may currently be on.

Why remortgage now?

The main factor encouraging many to consider remortgaging at present is the potential for a significant rate increase. Borrowers who took out a two-year fixed rate mortgage two years ago enjoyed some of the lowest rates ever seen. Indeed, in January 2017, the average two-year fixed rate mortgage came with a rate of 2.31%.

Now, however, those borrowers who took advantage of these highly competitive mortgages two years previously will be transferred onto a typical SVR of 4.90%, unless they choose to remortgage elsewhere. Not only this, but the 2.59% uplift in the rate they must pay is the most significant increase recorded since February 2008.

As at 8th January 2019 a typical borrower with a £200,000 repayment-only mortgage with a term of 25 years could expect to see their monthly payments rise by £279.34 a month – or £3,352.08 a year – if they remain on their current lender's SVR.

However, by choosing to remortgage to a new short-term fixed rate deal – on which the average rate is currently 2.52% – their typical repayment would be £257.30 a month (or £3,087.60 a year) cheaper than if they did not remortgage.

Worryingly however, separate research from L&C Mortgages recently found that a third of mortgage customers are currently sitting on an SVR.

When remortgaging might be a good idea

Motivation to remortgaging has already reached an 11-year high, with borrowers who are wary of potential economic uncertainty in 2019 looking to lock themselves into the protection of the low interest rates currently being offered by lenders.

As highlighted by Moneyfacts mortgage expert, Darren Cook, the reasons behind this are that borrowers who took out a fixed rate mortgage two years ago have enjoyed historically low rates, with lenders now jostling for position in the drive to encourage borrowers to take out remortgage products, offering some of the lowest interest rates seen in a generation. With the potential economic uncertainty foremost in people's minds, it is anticipated that the popularity of fixed rate remortgage products looks set to continue well into 2019.

Moving onto a new deal early?

This rush to remortgage is not only attracting customers who are coming to the end of their current deal, but also those whose current fixed rate term comes to an end in a year's time or more.

As per the Moneyfacts UK Mortgage Trends Treasury Report, with borrowers potentially saving more than £3,000 a year by opting for a new fixed rate mortgage, the move away from sitting on existing SVR deals is gathering pace. Some mortgage holders are beginning to investigate the benefits of applying for low-rate offers now in order to 'lock-in' on favourable rates – even if this means paying a penalty now for early repayment – gambling that they will save more in the long-term by protecting themselves from unexpected hikes in mortgage lenders interest rates over the next two years.

"Borrowers may be shocked to find that their monthly repayments could increase by so much if they settle for their provider's SVR," said Darren Cook, finance expert at Moneyfacts. "This is likely to motivate many customers to remortgage. Faced with such a big jump in monthly repayments, it clearly pays for borrowers to shop around. However, remortgage customers must consider all aspects of the mortgage to ensure they are getting the best deal for them."

Pros and cons of remortgaging

Pros:
  • Remortgaging often avoids paying higher rates on a lender's SVR.
  • Added security of fixing your repayment for a set period
Cons:
  • Lender may want you to remortgage your whole mortgage and move to a higher rate if your current mortgage is on a lifetime tracker rate.
  • Remortgaging would incur additional fees, such as booking, legal, conveyancing and valuation fees, if changing provider

Moneyfacts tip:

"Find out how much you could potentially save with our Best Buy charts for fixed rate mortgages"

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

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