Is it time to remortgage?
Over the last few years homeowners have tended to stay with Standard Variable Rate Mortgages. Rates remained historically low and at the time other mortgage products were severely restricted. However in the last 12 months there has been a significant shift in the mortgage market. Lenders are now offering a greater variety of fixed rate and trackers deals and rates and fees have generally come down somewhat, particularly for borrowers with deposits of 25% or more. Now in early 2012 we are also seeing a number of lenders announcing rises in their SVRs over the next few months. It is an ideal time for homeowners to look into remortgaging as there may well be a deal out there currently which could save you a significant amount of money over the next few years.
Homeowners have tended to choose SVR mortgages either outright or by default once their fixed rate term has come to an end, as they have traditionally had slightly lower rates than fixed products. SVR rates vary considerably between lenders. The current range is from 2.5% – 6.08% with the average SVR in February 2012 at 4.17%. The rate is arbitrarily set by the mortgage lender. It takes into account the Bank of England base rate, the cost of funding mortgages and the balance between attracting both borrowers and savers, however it is finalised at the discretion of the lender and as such is open to changes which may be unforeseen by the borrower. The Council of Mortgage Lenders wants homeowners to plan ahead, advising that rates will inevitably rise at some point and borrowers must ensure that their monthly mortgage payments remain affordable.
In the next few months more than 1.2million homeowners will see their mortgage payments increase as several lenders have announced an SVR increase. These include Halifax which is set to raise its SVR from 3.5% to 3.99%, RBS with a rise from 3.75% to 4.0%, Co-op from 4.24% to 4.74% and Yorkshire and Clydesdale Banks from 4.59% to 4.95%. Other lenders are using the small print in their mortgage agreements to increase rates for homeowners wherever they can. Manchester Building Society is raising its tracker mortgage rate in spite of the Bank of England base rate remaining at an historic low of 0.5% as its terms and conditions allow unlinked rises if borrowers are given 12 months notice. Skipton Building Society has been able to remove the ceiling on its SVR by citing ‘exceptional circumstances’ as the reason.
So what are the options? A fixed rate mortgage over a term of 2 – 5 years will give security during that time period and protection against any unforeseen rate changes. Products range from 3.29 – 4.99 % interest but there is considerable variation in product fees and terms and conditions. It is important to take these into consideration when comparing products and using an independent mortgage broker is the best way of ensuring you find the right product. Rates, fees and terms will tend to be more favourable as the size of the homeowner’s deposit increases. Those with at least 25% deposit should have a good choice of products while those with a deposit of 40% will be in an excellent position.
Another option would be to remortgage onto a tracker mortgage. Again, long term or lifetime trackers at competitive rates will be more readily available to those with larger deposits but it is always worth asking your mortgage broker what is out there. Mortgage brokers would tend to agree that those currently on an SVR of 4% or more and with a reasonable amount of equity in their home should consider a move. There are currently some excellent deals available such as 5 year fixes at less than 3.5% and lifetime trackers at less than 3% for those with the right deposit. With these longer term products it is always important to check on any early repayment charges or redemption penalties and whether or not the mortgage is portable.
Mortgage broker Chris McConnachie of independent mortgage brokers MMI Brokers says that now is the ideal time to look around; ‘The current economic climate and subsequent low interest environment means that it has never been cheaper to borrow money for those in a position to do so. I would advise asking your mortgage broker to search the market at this time even if your current mortgage product is tied in for the next few months. Remortgage rates approved now can be secured for up to 7 or 8 months leaving you in an excellent position when your current deal ends. It is also an excellent time to think about remortgaging in order to borrow for home improvements. Improving or extending your home in this way while the housing market remains stagnant is a great investment for the future’.