Is now a good time to remortgage?

The Bank of England has raised interest rates four times in the last three months.

The latest rise, from 0.5% to 0.75%, means rates are at their highest level since March 2020.

The change will add around £42 a month to repayments for someone with a £200,000 mortgage.

A combination of rising inflation and the war in the Ukraine disrupting global supply chains for food and energy has led to a rise in prices.

The increase in interest rates by the Bank is an attempt to try and reduce that inflation and calm the cost of living.

Interest rates rise again

How do rising interest rates affect the cost of mortgages?

Higher interest rates make borrowing more expensive.

During the pandemic, the Bank of England slashed the Base Rate to an all-time low of 0.1%.

The Base Rate impacts all other interest rates. When it’s low, it costs you less to borrow money, but it also means you make less money in interest on your savings.

When the Base Rate is higher, interest rates on mortgages tend to be higher too.

Higher interest rates on fixed-rate mortgages means that it will cost you more to repay the mortgage in the long term.

That said, if you are already on a fixed-rate mortgage, as 74% of the UK population currently are, your payments will continue to stay the same, despite the rise in the Base Rate.

Variable rate and tracker mortgages tend to follow the Base Rate more closely, so will rise and fall as the Base Rate increases and decreases.

There are still plenty of mortgage deals available for under 2%, see the best deals at money.co.uk

Do you lose money when you remortgage?

Most people remortgage to get a cheaper rate and pay less money on their mortgage as a result.

As long as you are at the end of your mortgage agreement or ‘term’, then you shouldn’t need to pay any exit fees or early redemption penalties.

If you aren’t, be aware that the cost of leaving your current mortgage could run into thousands, so it’s well worth checking first.

In addition, you will often pay fees when securing a new mortgage. They include:

However, if you’re moving to a deal with a lower interest rate, you could save yourself hundreds of pounds each month.

And at a time when interest rates are rising, it’s best not to go onto your lender’s standard variable rate when your mortgage deal ends.

Is it worth remortgaging early?

The best time to start looking at other mortgages is around four to six months before your current mortgage deal ends.

Most lenders will allow you to lock in a deal with them between three to six months in advance.

So if you’re tied into your current mortgage for another three to six months, you can ‘book’ a deal to start in three to six months’ time, at the rate it’s currently being offered by the lender.

That said, if you later find a deal with a lower interest rate, you may have to pay a second lot of fees to secure it.

It can be a good idea to use a broker to ensure you get the best deal for you, as they’ll know the mortgage market inside and out and can often get the best deals.

Why it’s worth using a mortgage broker

Should you remortgage now?

The Bank of England’s chief economist has warned that further interest rate rises might be needed to curb inflation.

Some experts are predicting that the Bank Rate could increase to 1.25% by the end of 2022.

Should I remortgage if I’m on a fixed-rate deal?

If you’re on a fixed-rate deal set at a low interest rate, you’re in a great position right now and there’s no need to look to remortgage.

However, if your deal is about to come to an end, you’re likely to go onto your lender’s standard variable rate – and with interest rates getting higher, this will be a lot more expensive.

So it’s worth shopping around now for another low-interest fixed-rate deal before interest rates go up again.

Find the best remortgage deals available right now

Should I remortgage if I’m on a standard variable rate or tracker deal? 

If you’re on a standard variable rate or tracker deal, your mortgage payments are likely to continue increasing this year.

Now could be a good time to secure a fixed-rate deal at a lower interest rate to protect yourself against this.

With fixed-rate mortgages, you’ll know what your outgoings are going to be every month, and that’s a good thing in a time of economic uncertainty.

Find the best mortgage deals available right now

Remortgaging now: the expert’s view

James Andrews, senior personal finance editor at money.co.uk, says: “After three rises in a row, the odds are that the Bank of England will hike again in the near future as it battles to keep inflation under control.

“This would almost certainly push mortgage repayments up – either immediately after the next rate rise is announced, or when it’s time to switch to a new deal.

“That means people are, rightly, questioning whether they’d be better off switching mortgages sooner rather than later.

“If you’re already on your lender’s standard variable rate, you’re free to switch and can almost certainly make substantial savings by doing so.

“There are plenty of deals on the market at less than 2% interest if you have a decent amount of equity built up in your home, and moving to a fixed deal now would let you keep that rate for at least two years.

“Just make sure you look at all the costs involved, rather than just the headline rate, when choosing a new deal.

“If you’re already on a cheap fixed-rate or discount-rate tracker things become a little more complicated. If there are more than six months left to run on your existing deal, you’ll face an early repayment charge for moving.

“While locking in a cheap rate now, before any future rises are taken into account, could still make sense, you need to be a bit more careful with your sums.

“You might be better off staying on your existing deal until it runs out, rather than pay the exit fee as well as the new rate earlier, but it will depend on how much the new deal could save you and how high the repayment charge will be.

“Speaking to a mortgage broker is a good idea if you’re not confident in your maths, and want to make sure switching is right for you.”