Fixed rates may be falling slightly, but mortgage prices remain high for anyone buying a property or remortgaging. Here's what you need to do if you want to ensure you get the best deal possible when you take out your new mortgage
If you are a homeowner you will be acutely aware of the events playing out in the mortgage markets. High interest rates mean the cost of mortgages has risen to heights which may feel out of reach to many.
These are worrying times for homeowners. If you are about to remortgage in the next few weeks you will be looking at switching to a deal which is going to be much more expensive than the one you are already on.
But what if you are thinking ahead? What should you do if you have six or more months left on your current deal? Or what if you are weighing up the pros and cons of getting onto the property ladder or moving home in the next year?
Whilst it might feel impossible to do know what to do for the best, there are still things you can do to ensure you are in a good financial position so that when you take out your mortgage, you’ll be eligible for the best deals. We’ll run through these further down.
First, there’s a bit of good news in that mortgage lenders have started to cut rates. It’s not by a huge amount – but gradually more and more lenders, led by HSBC, TSB and Nationwide, are shaving a little bit off their prices.
Yesterday Barclays became the latest ‘big six’ lender to cut some of its fixed rates leading many to forecast more competition.
Ben Tadd, director at Lucra Mortgages, said: “The mini-rate war in the residential mortgage market appears to be continuing, with the main six lenders in the market having all now slashed their fixed rate offerings.
“This is now likely to force smaller lenders to follow suit and drop their prices to stay in touch with the competition.
“This week’s inflation data on Wednesday will be crucial to dictating lender pricing in the immediate future and, with further positive inflation numbers anticipated, the rate war is likely to continue apace.”
This begs the question, if you are borrower or would-be borrower how do you position yourself to avoid any potential fallout from the uncertain economic environment – interest rates and inflation – but also to benefit from any positive events?
Claire Flynn, an expert at Confused.com, explained: “While mortgage borrowers might be relieved to hear some of the UK’s biggest lenders are reducing rates, those due to remortgage still face much more expensive deals than in recent years.
“If you’re in this position, while you remain likely to face a rate increase, there are a few steps you can take to improve your chances of getting the cheapest deal possible.”
Here are some of her tips for remortgagers and, further down, home buyers
Remortgaging?
Look into remortgaging options early
Set a calendar reminder for exactly six months prior to your mortgage deal ending to ensure you begin looking into remortgage at the earliest opportunity.
Flyn said: “Mortgage offers are usually valid for around six months. You can secure a new deal now and switch automatically when your current deal ends, avoiding early repayment charges.
“This also stops you moving to your lender’s standard variable rate, which is normally more expensive than other deals in the market.
“If you opt for a fixed-rate mortgage, this also means you won’t be impacted by any further rate increases. And if rates reduce before you change to the new deal, you can switch again.”
Consider overpaying your mortgage if you can
For all those currently enjoying super low rates, it could be prudent – if you can – to overpay. Most lenders will allow you to overpay by as much as 10%.
By overpaying you are further reducing the loan size and this may help you access a lower loan-to-value deal, which generally have cheaper rates, when you do eventually remortgage.
“You can do this monthly or in a lump sum,” Flynn said. “But lenders usually have a limit on how much you can overpay before they charge a fee.
“If you’re on your lender’s standard variable rate, or certain tracker deals, you usually don’t face early repayment fees so can overpay as much as you like.
“Contact your lender or check the terms and conditions of your deal to find out your overpayment options.”
Speak to a whole-of-market mortgage broker
Speaking to a broker has never been more valuable. Flynn explained: “An independent adviser can compare mortgage deals from across lots of lenders to find the best deal for you.
“While it can be tempting to stick with the same bank or building society, it’s worth looking at all of the options.
“In the current market, there can be significant differences in the rates on different mortgage deals. So, getting expert advice could help you find the best deal and save you a lot of money.”
Buying a home?
Think carefully about your property budget
Is now a good time to buy? It’s the multi-million dollar question at the best of times – in today’s environment, it becomes even more salient.
Flynn’s verdict? “While mortgage rates are much higher than they have been in recent years, this has also resulted in reports of house prices falling,” she said.
“If you’re thinking about buying your first home, you should think carefully about your property budget.
“With rates much higher than in previous years, it’s more important than ever to make sure you only take out a mortgage you can afford.
“Look at your income and outgoings to work out what you can realistically pay each month, and make sure you factor in room for unexpected costs.”
Keep an eye on the local property market
Bookmark all those property websites and sign up for alerts, Flynn recommends keeping your ear to the ground if you want to be in the best position to buy.
“Reports of house prices falling might have encouraged you to start house hunting,” she said. “But be aware that the property market can vary in different parts of the UK.
“Keep an eye on prices in the area and property type you’re interested in, to see if you can find what you’re looking for at the price you want. “
Use a mortgage broker
Brokers are equally as important if you are buying a home as when you are remortgaging. Flynn said: “As it’s your first time going through the mortgage process, expert advice is really important. A broker can help explain all the jargon and documents required.
“And they can make sure you apply for deals suited to you. This limits the chances of your mortgage application being rejected, which can negatively impact your credit score.”
