Remortgaging can save borrowers thousands of pounds a year but with Covid causing unemployment or loss of income for many households, it can be difficult for many homeowners to make the switch. We take a closer look at the options
Due to the financial fallout of Covid many homeowners have admitted they are fearful of remortgaging at the end of their current mortgage deal.
For many it’s down to concerns they will not be accepted by lenders because their income has reduced as a result of the pandemic. For others it’s because they are waiting to come off furlough or gain more sound footing with their employment. Or it could be a general trepidation about future finances.
Whatever the reason, experts are urging those with a mortgage due to expire in the next few months to seriously consider switching to a new deal as the alternative could be far more costly.
Eleanor Williams, finance expert at Moneyfacts.co.uk, has done the maths to help explain.
When borrowers don’t remortgage they automatically revert to their lender’s standard variable rate (SVR). Currently, according to Williams, this is at a low of 4.41%.
Yet despite it being relatively cheap – thanks to the Bank of England cutting the base rate to 0.1% – this is still 2% more than the average borrower would be paying if they switched a new deal.
So, those coming to the end of a two-year fixed rate deal taken in March 2019 when the average rate was 2.49%, could face a rate hike of nearly 2% if they revert to their SVR. It means they could potentially save over £3,500 – based on average rates and property valuations – if they were to secure a new two-year fixed rate deal today.
Remortgage rejection
For some people, of course, there may be no choice. Research out this week from comparethemarket.com revealed the impact of the pandemic on employment and financial stability meant many households have become ineligible for competitive fixed rate deals.
It revealed more than two-fifths (41%) of households who were unable to remortgage said their application was rejected because they had lost their jobs, and one-third (32%) said it was because they had been furloughed.
A quarter (26%) of homeowners thought their application was rejected because of a salary cut.
For these borrowers the advice is to seek support from a broker, who can search the market to find deals to suit your specific needs.
What’s more there are a number of lenders out there who will consider furloughed salaries – it’s just case of getting help to find them. And this is something a broker or adviser can help you with.
Williams said: “Undoubtedly, although there may be those currently struggling financially, it would be unwise for borrowers to assume that they would not be eligible for a new mortgage, even if their existing lender is unable to offer a new deal.
“Seeking independent advice from a broker who is up to date on the ever-changing mortgage sector could unveil options which may save them significant sums.
“There are “furlough friendly” lenders who may be able to assist, lenders who may have different lending criteria to their current provider, and some brokers may have access to deals which borrowers cannot obtain directly.”
Worried about costs?
There may be many who would consider remortgaging, in principle, but are put off by the costs of making the switch. Indeed, fees can add up.
Williams explained there are deals without fees to be found – although they have reduced in number by 6%.
“At 2.75%, the average rate for fee-free fixed rates is lower than the average for those which do charge a fee (2.92%),” she said.
“Equally, there are still many options which could help to reduce upfront costs, with the proportion of the market offering various incentive packages remaining fairly stable year-on-year.
“The right mortgage is about more than just the initial rate offered, and advice could be invaluable in assessing what may be the best route forwards for an individual’s circumstances.”
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