Finding the right mortgage for your needs is challenging at the best of times - not least in the current climate. But, with a bit of help, nailing a great deal needn't be as hard it as sounds, says Stephanie Daley, director of partnerships at Alexander Hall
We have seen a lot of changes over this year with six Bank of England base rate increases, rising cost of living, energy bills continuing to climb and of course upward moving mortgage rates.
There are two more Bank of England MPC meetings scheduled before the end of the year, with forecasts suggesting these will result in further increases.
This has put continued pressure on personal finances, and for clients who are coming to the end of their fixed rate terms, it is difficult to know what’s the right thing to do when it comes to choosing a new product.
Should I fix now or wait for markets to change?
One of the most common questions we are seeing from clients is whether to fix in a rate now or wait to see how the markets changes?
Speaking to an adviser is the best place to start; they can explore all options for you. One thing to consider is how you would be able to cope with increases in monthly mortgage payment.
If these increases cannot be smoothed out by making minor lifestyle changes, then an adviser may suggest ways to help, such as extending the mortgage term, taking a portion of the debt on an interest-only basis (alongside a plan to repay this by the end of the term) or perhaps look at debt consolidation.
Why you should consider all the mortgage options
Recently we have seen variable rates pricing quite distinctly lower than fixed products. Typically, we see these offered as either discount variable or tracker products.
Discount variable products set the interest rate you pay at an amount below the lender’s Standard Variable Rate (SVR) for a defined period.
Trackers commonly track the Bank of England base rate, with a margin added by the lender. Some of these have been upward of 3% more competitive compared to the next best fixed rate.
Most online searches for mortgage products are those customers looking for fixed rates, this suggests a huge number of people are missing out on potential savings by not looking at all their options. Of course, variable products will not be suitable for everyone, particularly those with an aversion to risk of rate increases.
When deciding whether to go for a fixed rate or a variable product with flexibility, future plans are a key element of the advice process and a customer’s decision making. There is a large amount of misinformation surrounding the portability of fixed rate products.
Although most fixed products are portable (full details will be on your mortgage offer), it doesn’t guarantee that you, or the future property will be automatically approved. This could lead to incurring an unexpected early repayment penalty.
In a time where lenders are changing their affordability models, due to the increased cost of living and rising SVR rates, it means that the maximum loan you are eligible for today may decrease over time. So, if you were looking to port and upsize (during a fixed rate term) you may have to approach another lender to secure the lending required.
How to ensure you don’t miss out on a good deal
No one wants to miss out on a good deal and most lenders currently have a six-month mortgage offer validity period, so if rates do drop between now and the time you come to complete on the remortgage you can always look to swap again.
But at least you have something secured to fall back on should rates not improve. Your advisor will know the lenders that can be more flexible, such as those that can look to extend their remortgage offers, whilst keeping the same product and the lenders that will waive their early repayment charge in the last month of the current product. That means you may be able to secure a new product seven months out, rather than six.
For those customers whose mortgage products end in the first half of 2023, now is the time to be seeking advice from a mortgage adviser. They can take a holistic view of your current circumstances and future plans to be able to offer a solution.
With the average SVR currently at 5.4%, which is the highest in over a decade, it couldn’t be more important to speak to a reputable and quality adviser, who will help you to identify and understand your options.
Stephanie Daley is director of partnerships at Alexander Hall
