Deciding when to remortgage
The best time to remortgage was three months ago, and the next best time is now. At this point, further base rate increases are a question of when, not if, especially given the debate surrounding the Bank of England's strategy regarding the timing of interest rate rises. These conversations have centred around the possibility that the bank could have moved faster to raise rates in the context of inflation and that it will have to 'catch up' by increasing the rates in more significant tranches. Some economists have suggested that we could see 1.75% by August.
When it comes to refinancing in the current market, getting the best rate starts with deciding to remortgage and then getting it done. There are very few circumstances where you will benefit from waiting 3-6 months to see how things develop, given we only foresee rates getting higher. Start the remortgaging process and see it through as quickly as possible. Rate increases can be passed down to banks to borrowers as soon as the day after the Bank of England increases the base rate, so moving fast is an advantage.
What mortgage products should I refinance to?
Before we get into options, some background. The Bank of England base rate has decreased relatively steadily since 2007, and while 1.25% feels high against the historic low of 0.1% set in March 2020, it's not high compared to rates seen in the past fifteen to twenty years. Yes, lending is more expensive than it was, but it couldn't realistically sit at 0.1% forever, and an interest-raising environment was inevitable at some point. The takeaway is this: there are plenty of opportunities to lock in good rates, and lending is still cheap.
In a falling interest rate market, the best strategy is usually to fix rates for a short time (two years is standard). After that, you remortgage or renegotiate, given there is a distinct possibility that the interest rate will have fallen when your fixed-rate period is up.
In an environment where interest rates are rising, longer-term fixed rates can be a better strategy. Currently, longer-term fixed rates (i.e., five and ten years) tend to be much more competitively priced than short-term fixed rates. Refinancing to longer-term fixed rates is an excellent way to get more certainty on cost and to lock in the current low rates for longer. Granted, longer-term fixed rates don't offer you as much flexibility as short-term fixed rates, which allow you to renegotiate more regularly. However, in return for being locked into a long-term fixed rate, you will have security and clarity on costs and keep a low rate for longer, which may be advantageous as interest rates continue to rise.
Other factors to consider
Property values
Average house prices have increased significantly in value over the past couple of years which may have pushed up the value of your property since you bought it. This might mean you have significantly more equity in your property than you did even two years ago. If this is the case, you may be able to remortgage with a lower LTV than your current package, which may also be beneficial if you want to refinance. This may be the case if you are coming to the end of something like a five-year fixed product.
Savings and equity
If you have made considerable savings during the past two years or your financial background has changed positively (a new job or a promotion, you have saved a considerable amount, or you received a lump sum from a divorce or sale of a business, for example), you may also consider investing more of your cash into your home to bring down your LTV at the same time as your remortgage. If you want to remortgage and your situation has changed since you took your current finance product, we'll work with you to explore how to best optimise your mortgage going forward based on your finances and plans.
Lender competition
The lending market in the UK is very competitive, and rising rates don't mean there is a lack of lending appetite. Some points to note in particular:
- Negotiating great deals is possible as lenders are keen to capture new business. Many lenders are making the longer-term (five and ten-year) products very attractive
- Lenders need to stay relevant, especially in the UK market, which has lots of players. Some will cut their margins to offer better rates than the competition and keep lending as cheap as they possibly can – there are still great rates to be had, and it is worth shopping the market
- Not all lenders will automatically raise rates in line with base rate changes. Many do, but some won't adjust their rates immediately or have a different strategy. Again, it is worth exploring all the options – sometimes, an unusual player you won't have thought of or would have assumed can't offer the best rates will be the lender that can deliver the best remortgage package.
If you want to remortgage, the best way to get the lowest rates is to have access to as many lenders as possible. There are currently an extraordinary number of products available on the market, but time is of the essence when it comes to choosing and applying to lenders. Especially if you have a high-value mortgage (anything over £1 million outstanding), you will benefit from our ability to go straight to the right lender and negotiate quickly for you – now is not the time to be passive.
Understand what remortgaging costs
Remortgaging isn't the same as getting a mortgage and is typically a much faster process. One of the reasons we suggest moving fast is that we can complete the whole process very rapidly. This means we can help you remortgage and lock in current rates, even if the Bank of England raises rates again quickly (provided we have a good 4–6-week window to complete the transaction and we have everything we need to do so).
However, remortgaging isn't as straightforward as getting a new product that costs less every month. There are costs that come with a remortgage, such as valuations and legal fees. Financial penalties (ERPs) for repaying your mortgage early to your present lender are common – we can check your current package to see if (and what) you may be liable to pay. It's essential to have a complete picture of what remortgaging will cost to ensure it makes sense for you, considering the individual terms of your current package. We will help you do this quickly, and effectively and present you with all the options, ensuring remortgaging is a cost-effective avenue to pursue.
