Brexit has been kind to mortgage holders. As the Bank of England’s interest rate has come down, banks have been able to borrow more cheaply, allowing competition to increase and mortgage rates to fall.
Borrowers have been quick to take advantage of the deals on offer; in August, the number of people remortgaging hit a seven year high, according to the Council of Mortgage Lenders. And Legal Marketing Services, a mortgage processor, found that 11 per cent of people who refinanced in August will now pay over £500 less each month compared with their previous deal.
Remortgaging now could save you a considerable sum, whatever the size of your loan. HSBC made the headlines earlier this year when it launched its two-year fixed rate of 0.99 per cent for mortgages up to £500,000, breaking previous records. This remains the cheapest deal on the market, and the bank has followed it up with a 1.09 per cent two-year fixed for mortgages of up to £5m (subject to a 60 per cent loan-to-value amount and a £999 fee), catering to the other end of the market. Barclays, Halifax, Metro Bank, NatWest and Santander are also offering mortgages over the £1m mark.
So how do you know if you should switch?
Of course, it depends on the rate of your current mortgage. “If you’re currently on one of the very cheap lifetime trackers, which tend to charge 0.5 per cent over the Bank of England’s base rate, you should think about staying put because there is a chance the Bank could cut rates marginally again at some point in the future,” says Aaron Strutt of Trinity Financial.
Homeowners who are remortgaging tend to have larger deposits than first-time buyers, and so could be eligible for some of the lowest fixed rate deals on the market – less than one per cent for two years, less than 2 per cent for five years or 3 per cent on a 10-year deal.
“But the lowest fixed rate doesn’t necessarily mean the best deal overall,” says Rory Stoves, banking and insurance spokesperson at uSwitch. Be sure to take fees into account when calculating how much you’ll pay overall, especially if the duration of your mortgage is two years, though most aggregating websites should work this out for you. “Look at the standard variable rate (SVR) your mortgage will revert to at the end,” he says. “And ask yourself if you are willing to remortgage every time your fixed rate mortgage comes to an end. If you aren’t, you could be better off with a five-year fix, and in very exceptional cases a 10-year rate.”
The lowest fixed rate doesn’t necessarily mean the best deal overall
If you’ve been moved onto your current mortgage’s SVR, it is almost certainly worth shopping around. Despite instructions from Mark Carney to bring SVRs down when the Bank cut the base rate, research by Moneyfacts shows that a quarter of lenders have not passed this onto their customers through lower rates. The data firm found that the average rate of a two-year tracker had risen from 1.94 per cent at the start of September to 2.01 per cent at the beginning of October.
“If your fixed rate mortgage is coming to an end or you’re on a variable rate without any early repayment charges, then contact your lender and ask what they can offer you to stay with them,” says Strutt. “If you don’t want to speak to them over the phone, many have online portals where you input your mortgage account number and other personal details and the rates you can access will be listed for you. Provided that you don’t want to borrow any more money, take anyone off your mortgage, or swap it from capital repayment to interest-only, you can secure a new rate with four or five clicks.”
This article appears in the October edition of Money magazine.