Mortgage rates have fallen since the turmoil of the mini-budget last Autumn, but with speculation they might reduce further, homeowners may be wondering whether now’s the right time to remortgage. The International Monetary Fund (IMF) last week predicted that once inflation is brought back under control, interest rates could return to pre-pandemic levels, although it didn’t say when it expected this to happen. Our remortgage tracker shows that the average of the lowest two-year fixed rate mortgages from the biggest lenders is currently around 4.37%, down from 5.90% in November last year, while the average of the lowest five-year fixed rates has fallen from 5.67% to 3.97%. Here, we weigh up some of the options for homeowners approaching the end of their existing deals and look at the pros and cons of each.
Moving onto the standard variable rate (SVR)
Rolling over onto your lender’s SVR when your current mortgage deal ends is usually the worst thing you can do, as SVRs are generally much higher than other mortgage rates. Some homeowners, however, may be considering doing this in the hope that fixed rates will fall further soon. Bear in mind, however, that there are already more than 40 lenders with SVRs over 7% and several with SVRs over 8%, so this would be an expensive option to take.
Choosing a ‘temporary’ tracker
An alternative route that homeowners might want to consider is a tracker mortgage, which as the name suggests, tracks an external interest rate, such as the Bank of England base rate, plus a set percentage. Tracker rates are typically considerably lower than SVRs and many don’t have Early Repayment Charges (ERCs). This means that borrowers who are comfortable accepting the fact their payments might fluctuate could potentially sign up for a tracker now and then switch later without penalty if fixed rates continue to fall. There may however be arrangement charges and other fees to pay when they come to remortgage.
Locking into a short or long-term fix
Those who need budgeting certainty may be weighing up whether to opt for a two-year fixed rate mortgage when their current deal ends, or to lock into a longer five-year fixed rate deal.Five-year fixed rates are currently cheaper than two-year fixes, indicating that markets believe rates will reduce over the long term. Despite this, shorter term fixed deals are currently proving more popular among those who believe rates may come down in the next couple of years. Whether a short or longer-term fix is right for you will depend on your individual circumstances and how long you want peace of mind for. Going for a longer fix will mean you’ll know exactly how much you’ll have to pay each month for the next five years, but there’s a risk cheaper fixes might become available whilst you’re still tied to your deal. A shorter-term fix may cost a bit more, but you may be able to secure a lower rate in just a couple of years - although there’s a chance you may not, so you’ll need to think carefully about which option you’re most comfortable with.
Plan ahead
If your current mortgage deal is due to finish within the next six months, then now is certainly a good time to at least review the various options that are available to you. Planning ahead means that if you find a deal you like, you can secure it now without having to commit to it until later on. If you’re not sure which mortgage option is likely to be right for you, speak to a broker for advice on the best deals to suit your needs. A broker can also look at what your existing lender is offering, so you can compare these deals to mortgages available on the wider market.
