Why you should consider remortgaging

remortgage

Consecutive reductions in the Bank of England Base rate over the past 3 years have driven down mortgage interest rates, benefitting borrowers exposed to variable and tracker rate mortgages. Unfortunately, with a need to recapitalise their balance sheets and improve profit margins, lenders have begun to reverse this trend by increasing standard variable rates (SVR).

Halifax for example, recently announced that from the start of May it would be increasing its SVR from 3.49% to 3.99%. There is no doubt that many other lenders will follow, if they have not done so already.

For borrowers with fixed or tracker rate deals, increases to the SVR have no effect, but for anyone on a variable rate mortgage, any rise will cause an immediate uplift on monthly payments.

Generally speaking, for anyone with an uncompetitive tracker or a standard variable rate with a reasonable level of equity (at least 15-20%), it may be possible to reduce monthly payments by remortgaging to a new deal.

Remortgaging Considerations

Finding the lowest interest rates is a fairly straightforward process, however when fees, interest calculation periods, flexibility and functionality are factored in to the equation, getting the best deal becomes far more complicated. Fees for example vary dramatically, and in many cases, a low headline interest rate may be offered at the expense of greatly increased fees.

The level of flexibility or functionality available varies dramatically from loan to loan and should be considered carefully in comparison with the specific requirements of each case. For example, for anyone with a plan to move in the near future, a loan which can be ‘ported’ across to the new property may be desirable, as could a facility for additional borrowing for individuals considering home improvements.

Cost of course remains the main reason most consider remortgaging and with good reason. Lowering the interest rate for a loan has an immediate knock on effect on monthly payments, but it is essential that overall value is taken into account. If large arrangement fees or early repayment charges apply to an existing loan, the benefit of a reduced interest rate can and often is completely negated. Many people even end up out of pocket in the long run.

What type of mortgages are available

Nowadays, with the magnitude of information freely available, most people are familiar with the different types of loans available, but to summarise:

  • Fixed – the interest rate is fixed at a set level for a set amount of time
  • Variable –the mortgage interest rate is determined by the lender’s internal policy and can and will be varied regularly.
  • Tracker –the mortgage interest rate is linked to the Bank of England base rate and varies accordingly.
  • Discount – offers a discount to the lender’s standard variable rate, for example, SVR minus 1.5%.
  • Offset – the outstanding mortgage balance for interest rate calculation is linked to a current account.
For more information see our guide to mortgage interest rate types.

Should I go for a fixed rate loan?

A common discussion we have with our clients is whether or not they should opt for a fixed rate mortgage. We could talk about the macro economic factors that affect interest rates all day (although we cannot give predictions), but in every case, the decision to fix should be based on individual circumstances not just how the interest rates compare. For example, clients with a large amount of disposable income can afford interest rate rises (which would be applicable to a tracker mortgage), however in cases where income only just meets expenditure, finances could become strained if monthly payments rise. In the latter case, a fixed rate loan would guarantee monthly payments and provide financial security looking forwards. For more information on interest rate types see our guide to mortgage interest rate types.

Why should I remortgage now?

It is impossible to categorically predict the future of lending policy, (and you should question anyone that suggests otherwise) but a number of factors would suggest that now could be a good time to remortgage:

  • New mortgage are showing a rising trend– the market for mortgages is constantly changing and recent months have seen an upwards trend in both fixed and tracker rate mortgages. For the reasons mentioned earlier, this trend looks likely to continue, albeit at a reasonably slow pace.
  • A second note to the above point is that because rates are constantly changing, a deal available today may not be available tomorrow. On this basis, a loan which can reduce costs, and meets all requirements should be taken advantage of.
  • House prices are contracting – over the past few years, house prices have fallen for a number of reasons (not discussed here), which in turn could have a negative impact on your ability to remortgage. For example, a sharp change in your property valuation could alter your loan-to-value ratio and restrict your availability to new mortgage deals.
To summarise, if there are no early repayment penalties applicable to your existing variable rate mortgage and you have a decent amount of equity, remortgaging could be in your interest.

Your home may be repossessed if you do not keep up repayments on your mortgage.

For mortgage advice we can charge a fee of typically £500 or we can receive commission from the lender.

Buy to let mortgage adviceCondidering Buy to Let?

A Buy to let mortgage allows you to buy a property and rent it out for commercial gain. The rent that you receive should at least cover the monthly mortgage payments or you will have to pay the difference yourself. The benefits are the potential to gain from an uplift in valuation or provided the rent received is higher than the mortgage costs, equity can be accrued in the property over time or an income can be derived.

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