Is your fixed-rate mortgage expiring soon? Some of the explosive jump in fixed-term interest rates seen over the past year has been reversed in recent months, but levels remain much higher than for most of the past decade (see chart below). Unusually, rates for five-year mortgages are below two-year fixes. Meanwhile, variable mortgage rates have continued to rise as the Bank of England increases official interest rates to fight high inflation. This article covers key considerations if your mortgage is coming to an end.
Start looking early
You can normally secure a deal up to three to six months in advance. If you don’t act in time, you could end up on expensive standard variable rates. It may take a couple of months to remortgage, but this can be quicker if you’re switching to a new mortgage at your current lender. Tip: A good mortgage broker can often find you a cheaper rate. They may also monitor the locked-in rate and reduce it if the lender’s rates drop before your rate is due to start.
Loan-to-value (LTV)
The LTV measures the outstanding mortgage amount against the market value of your home or property, with the difference being your equity. The lower the LTV, the better the mortgage rate (up to a point), which means lower monthly repayments and better affordability. Market-leading mortgage rates are normally available for LTVs of 60% or below. Tip: You could appeal a lender’s valuation if you have made significant home improvements, as this may lower the LTV. Providing photographic evidence can help ‘build the case’ with the lender.
Repayments
You may be able to lengthen the mortgage term and reduce monthly repayments. This requires a full lender review of your finances. You could potentially choose to keep repayments at the same level as before, for a budgeting cushion. If needs be, you could reduce repayments to the minimum level. Interest-only mortgages are also a way to keep monthly mortgage payments in check. Tip: Interest-only mortgages tend to be more readily available on investment properties.
Fixed vs. variable rates
Choosing the mortgage type (fixed versus variable) or the length of a fixed-rate period can be a daunting task. Tip: A mortgage adviser can help you make this key decision by highlighting rate comparisons, and the advantages and drawbacks of different products.
Don’t rest on initial offers. The basis on which banks set mortgage rates has come down, and this, together with increased bank competition, has led to cheaper UK rates. Call 03300 564 446 to learn more, or get in touch via our contact form.
This article is for general information purposes only and does not constitute financial advice or a personal recommendation. Your home or property may be repossessed if you do not keep up repayments on your mortgage. Mortgage availability and terms depend on your individual circumstances and are subject to lender criteria.
