Isn’t it funny how life can change in an instant? As a Guildford mortgage broker that’s continually encouraging UK homeowners to be mindful of the benefits of remortgaging, our team of Guildford mortgage advisers has now taken a page from the Kwasi Kwarteng playbook – by doing a U-turn.
Here’s the thing. The level of uncertainty and anxiety that has arisen following recent government announcements has now filtered down to everyone. It’s no longer just the financial markets that are in a panic. Existing homeowners and first-time buyers are now asking ‘Is now a good time to remortgage?’ and even ‘Is now a good time to buy a property?’.
And it’s understandable, too. One minute there are reports of lenders pulling mortgage products, and the next they’re being reintroduced. So, what exactly is going on? More to the point, should you be remortgaging in today’s shifting mortgage market?
Beware the Early Repayment Charge
Can any of you recall Germany’s Weimar hyperinflation images from the early 1920s? The ones of people transporting piles of money in what look like wheelbarrows from the bank to the bakery just to by a loaf of bread, only to find that the value of their money had decreased in the minutes it has taken to walk the length of the road.
Things clearly aren’t that bad, but given the speed at which the cost of living is increasing people are starting to think about jumping out of their current fixed mortgage – even if it’s months before it ends – in order to lock into today’s rate before it increases again.
It’s a logical thought, but one that carries a degree of risk and cost. Only days ago, one of our clients was thinking of exiting their current mortgage deal 18 months early in order to start on a new fixed rate. In doing so, they would have incurred Early Repayment Charge of £13,000 and their monthly payments would have gone up from £2,815 to £4,400 per month.
Keep calm and overpay
Our view is that people should not consider paying to exit their current mortgage deal right now – unless, of course, the Early Repayment Charge is very low.
In the case of our client, it would take a significant rate rise – or rises – to make an £8,900 fee seem like a good deal. Rates have just gone up, and whilst we are expecting another one at the beginning of November, we’d be surprised if mortgage rates don’t significantly rise for another few months.
If you’re on a fixed rate mortgage that doesn’t end for some time and you’re concerned about what the rates will be when you are due to remortgage, here are our three tips:
1. Stick on your current rate
For now, at least. It will be lower than today’s rates, so enjoy it whilst you can.
2. Overpay (if possible)
If you can overpay your mortgage whilst you count down the months to when you can remortgage, then do so. Typically, fixed rate mortgages allow you to overpay 10% of the value each year. If you’ve reached that limit, try and save the excess money and use it to reduce the size of the loan when it’s time to remortgage. In doing this, you will be acclimatising yourself to the larger monthly repayments you’ll inevitably face when your new rate is in place.
3. Consider the Early Repayment Charge when you’re in the remortgage window
Paying a fee when you’re as close to the end of the term is preferable than taking a gamble and paying it 18 months in advance – especially if you can benefit from the advice offered in point two.
However, this will differ for everyone based on mortgage amount, the size of the Early Repayment Charge and the length left to run on the mortgage.
Just keep in mind that a 1% rise on a £100,000 25 year mortgage equates to £50 to £60 a month, so it might be worth planning a number of rate rise scenarios between now and when your existing product term ends, to get a sense of their potential impact, and taking a view from there.
Of course, as an award-winning Surrey mortgage broker, we can do this for you. Simply contact the team on 01483 238280 or e-mail info@complete-mortgages.co.uk to arrange a consultation.
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