As the Bank of England continues to increase the base rate, now may be a good time to review your mortgage.
Interest rates on mortgages are rising at the fastest pace in nine years¹, making remortgaging an attractive option for those wanting to beat the hikes. According to a new report by the Financial Conduct Authority, 370,000 borrowers could benefit from locking in a new deal2.
What does it mean to remortgage?
Remortgaging is when you move your existing mortgage from one lender to another. People typically remortgage to:
- Renew their mortgage term
- Find a better deal with another lender
- Borrow more money against the property
There are a variety of mortgages on the market - the most common being a fixed or variable rate - so you should choose the one that best fits your circumstances. On average, remortgaging can take between 4 - 8 weeks3.
Several homeowners are turning to remortgaging to release funds to improve their homes4. Natwest found that 62% of homeowners would consider remortgaging to fund a home renovation project - three times what it was post-pandemic. Remortgaging to finance home improvements could be cheaper than taking out a credit card or loan. Use our home improvement calculator to find out more.
When should I consider remortgaging?
With the Bank of England hinting at further interest rate hikes, now may be the ideal time to lock in a fixed rate mortgage deal. According to Moneyfacts, the average rate on a 2-year fixed rate mortgage is 3.74% - the highest recorded average since May 20135.
"We don't know what will happen to interest rates in the future", says Daniel Wenham, a mortgage adviser from Mortgage Advice Bureau. "It does look like they will continue to rise, so it is a good time to review your current mortgage deal".
If you want to exit your current deal early (as you feel you could get a better rate), you will likely pay an early repayment charge (ERC). Before making the decision, weigh up the ERC fee against the new deal to see if it works out cheaper in the long-run. As stated in the Guardian, 10-year fixed rate deals are becoming more attractive as the base rates continue to rise6, so switching your short-term loan to a longer-term one may work out cheaper, even with the early repayment charge.
If you're in the last six months of your current mortgage term, or you're thinking of exiting early, there are several things you can do to prepare:
- Check to see when your current deal expires (you can typically lock in a new mortgage deal six months before your mortgage expires)
- Boost your credit score (this will help you secure better rates)
- Enquire about early repayment charges (it may be more cost-effective to switch to a new rate)
- Chat to a mortgage adviser (they can search thousands of mortgages and find a deal that is right for you)
Learn more about interest rate rises and how they can impact your mortgage here.
Note: You may have to pay an early repayment charge to your existing lender if you remortgage.
1) The Times - Is now a good time to remortgage
3) Halifax - How long does a remortgage take?
4) Unbiased - Remortgage to renovate: the new property trend
5) Moneyfacts - Mortgage news
6) The Guardian - Ten-year fixed-rate UK mortgages are now incredible value
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend on your circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.
You may have to pay an early repayment charge to your existing lender if you remortgage.