Confused about your mortgage options? Wondering when this period of ever-increasing interest rates will end? You are not alone. Here’s the latest advice and guidance to help you find some answers
The mortgage furore which hit the headlines last week may have died down but it has left a swathe of borrowers feeling uncertain about the future and confused about what do when it comes to remortgaging.
You will be all too aware interest rates are rising – in fact, the average five-year fixed rate mortgage was 5.48% on Monday, according to Moneyfacts.co.uk.
To put this in context the same deals were averaging at 2.63% back in September 2021. Meanwhile, on 22 September – before Kwasi Kwarteng’s infamous ‘mini-budget’ – a typical rate on a five-year fix was 4.75%.
The Bank of England has signalled interest rates will continue rising and there have been forecasts they could reach 5.5% next year.
Katie Brain, consumer banking expert at Defaqto said: “The last few days have seen massive interest rate changes for fixed rate mortgages.
“The biggest increases being for two-year fixed rates for remortgages, for a 90% loan-to-value (LTV) the best rates have increased by 1.70% since the bank base rate changed, which equates to £138 more a month for a £150,000 mortgage.”
She added: ‘Mortgages will be in demand right now with interest rates changing so much, and borrowers wanting to secure deals.
“Lenders have increased rates so they can offer products for longer and potentially to more borrowers. Or they are trying to limit how many applications come in and don’t want to be top of the best buy table at the moment.”
What will happen to interest rates?
It is a worrying time for mortgage borrowers. Of course, no one ever really knows what will happen to interest rates at any given time but, in the current climate – where rates are climbing month-on-month and showing no signs of abating – the uncertainty can feel excruciating.
After all, who needs higher mortgage repayments on top of their soaring energy bills and rising food costs?
So, how long will high interest rates last? Will they go down in the next year or two?
Gemma Bennett, mortgage broker at The Mortgage Mum, said: “The truth is we don’t know for sure. However, many industry experts believe within 18 to 24 months rates will be back to a more ‘palatable’ level. Somewhere like 2.5% to 3.5% for example.
“We can’t expect rates to reduce as low as what we have been seeing in recent years, which in the industry we refer to as ‘covid low’ rates. It’s worth remembering the mortgage industry is cyclical in nature and rates do rise and fall, we do see fluctuations overtime.
“This however feels particularly extreme as it has risen so much and so fast and there are fears for the unknown.
“Understandably people are concerned. It’s very uncomfortable. Everyone is calling for a level out and we are hopeful for this.”
Meanwhile Alice Haine, personal finance analyst at Bestinvest, a DIY investment platform and coaching service, said: “The important thing to remember is that the talk is of a peak of about 5.5%. This means the base rate should, in theory, not go beyond that level and may even come down later in 2023.
“But there is no guarantee of either scenario in this uncertain economic environment, so the best option is to shop around for the best possible deal you can find right now and act fast.”
She added: “Offers come and go quickly in this topsy-turvy environment so make sure all your paperwork is in order to ensure you get the deal you want.”
What should I do if I am due to remortgage? Is there any point in switching deals when rates are so high?
Many of you may still be pondering whether it’s worth remortgaging at the end of your deal? With fixed-rates averaging at nearly 6%, switching to a new mortgage now may feel perilous.
So, what will happen if you don’t switch?
Mortgage lenders don’t extend deals when they expire – if you don’t take action and remortgage you’ll revert to your lender’s standard variable rate (SVR), which is generally more expensive. So, before you allow your mortgage to default to this rate, it’s worth checking how much the SVR will cost you.
Gemma said: “Your lender’s standard variable rate can fluctuate both ways and it’s worth checking what this is currently to help make your decision.
Alice agreed: “For homeowners whose deals are expiring now, remortgaging at a fixed rate, albeit much higher, is still a better option than leaving themselves at the mercy of their lender’s Standard Variable Rate – typically the most expensive way to borrow.
“Yes, mortgage rates may come down in the future, but that won’t be for some time, so it is still better to lock in a fresh deal now than run the gauntlet of interest rate rises expected over the next few months as the Bank of England strives to curb high inflation.
“If you hope to cash in if rates drop down again, perhaps only lock yourself into a two-year fix as opposed to a longer-term deal to give you more flexibility when you next come to remortgage.”
Gemma suggested speaking to an adviser if you were unsure what to do. “Your mortgage is as individual as you,” she said. “There’s no blanket advice here. For many, if your fixed rate is ending in the next six-to-eight months we say get looking at your fixed options now, to secure a rate as soon as you can, this can be set to take over when your current rate ends.
“As mortgage offers tend to last six months this can negate any further rises over the next six months.”
Making repayments more manageable
If you decide to move to a fixed-rate, there may be ways to lessen the blow of the higher price.
Gemma explained: “Many people prefer the budgeting certainty fixing a rate gives them. If required things can be done in the short term to make the cost feel more manageable like extending the term to reduce the monthly payments for example.
“Then in the next remortgage, when circumstances can be looked at again, and hopefully rates have reduced as expected, the term can be reduced back again.
“However, each person’s circumstances need to be carefully considered taking into account future plans and stomach for risk.
“The last thing you want to do is default on a mortgage payment as this affects you negatively for six years.”
