How Can I Remortgage and keep my payments low? 

This is a common question we face each day. 

In December 2021, the Bank of England’s base rate stood at 0.1%. Since then, it has increased eleven times and now stands at 4.25%. 

We have been privileged with meagre mortgage rates, and in 2021, it was possible to secure two and five-year fixed rates at under 1%. 

Then came September 2022… Liz Truss was PM, and we witnessed interest rates dramatically increase.  

Thankfully stability has returned, but the cost of borrowing is much higher than we have been used to. 

We don’t predict mortgage rates to ever return to a sub-1% market, but we expect some relative contraction.  

The cost of a 5-year fixed rate is presently 3.89%, and in 2023 we expect about £238 billion of mortgage deals to mature. This will result in increased payments. 

If you secured a two-year fixed rate of 1%, you would be shocked when considering your new fixed rate at 3.89% (the cheapest 5-year fixed rate as of 28/03/23 with HSBC). 

To put this into perspective, based on £250,000 over a 20-year repayment mortgage at 60% loan-to-value, your mortgage payment will increase by £351 per month. That is over £4k per annum in addition to other costs of living increases. 

So what are your options to keep payments low? Let’s look at a few options:

Plan Ahead 

While the Bank of England rates have increased, the cost of fixing your mortgage rate has reduced. This is because lenders base their mortgage rates on the SWAPS market. This market predicts that rates will come down; therefore, the cost of borrowing at a fixed rate is cheaper than the BoE base rate. 

You can secure a new rate up to six months before your current rate expires, and you have nothing to lose by doing so because you are not committed to the chosen rate until it completes (ensure you chose one with a free valuation and legal fees). Therefore, if rates do reduce, you can select a new product with the surety that you have your current rate secured if rates do not reduce! 

A savvy Independent Mortgage Expert will monitor the market and advise you accordingly. 

Tracker rates 

Most experts predict that rates will reduce once we control inflation. If you choose a fixed rate, you have the guarantee of stability, but you won’t benefit from any reduction in interest rates. If you feel brave, then a Tracker rate will reduce as rates are cut. 

The cheapest 2-year tracker rate cost is 4.39% (0.14% over the BoE base rate) with Barclays Bank (28/03/23). 

Increase your mortgage term 

In an ideal world, the last thing you want is the burden of a mortgage hanging over you for any longer than necessary. 

Sadly, the world is not ideal now, and many are in “survival” mode.  

Subject to age criteria for the mortgage lender, could you increase the term of the repayment mortgage, which will reduce your monthly payment.  

If you opt for this solution, we strongly advise you to ensure it fits within your retirement plans and consider overpaying and/or reducing the mortgage term when affordability returns. 

Could Interest Only be a short-term solution? 

Again, this is not ideal, but it is a solution for many. Paying the interest only will result in not repaying the capital element of your mortgage. Very risky! 

Lenders will allow this for those with a minimum income, generally, a higher income customer, coupled with a plan to repay the capital element – selling the property is not always an acceptable repayment method. 

This is a great way to reduce your monthly payment, but please have a plan. Consider an overpayment when you receive bonuses or dividends generally works well. Most lenders will allow 10% overpayments per annum – some more. 

Overpay your mortgage 

If you are sitting on one of those lovely 1% fixed-rate mortgages and have a few years remaining, we urge you not to bury your head in the sand, as you may have a big shock in store. If you have the financial capacity, please repay as much of the capital as possible, as the lender will allow, without occurring redemption penalties. You will thank us when you come to remortgaging house. 

We hope this adds some value to your future remortgage, and please reach out to one of our experts if you need any expert guidance.