Should you brave remortgaging in 2023?
The Bank of England’s decision to raise interest rates for the thirteenth consecutive time in June has made borrowing more expensive, which has a knock-on effect on mortgage rates. The base interest rate is now 5% and is expected to peak at 5.75% this year, up from previous predictions of between 5% and 5.5%. This higher prediction has caused mortgage rates to rise, with the average two-year fixed rate now 6.19%, near October’s peak of 6.55%. The average five-year deal is cheaper at 5.82%, according to Moneyfacts.
Rising interest rates mean that people looking to remortgage their homes will pay an average of £2,900 a year more from 2024, according to the think tank The Resolution Foundation. This is because their monthly mortgage payments will be higher, as they will pay a higher interest rate on their loan.
The Resolution Foundation has warned that the UK faces a “mortgage crunch” due to rising interest rates. This is because many people who are currently on fixed-rate mortgages will come to the end of their deals in the next few years, and they will be faced with higher interest rates when they remortgage. This could make it difficult for some people to afford their mortgage payments, leading to increased repossessions.
If you are currently on a fixed-rate mortgage, it is essential to consider what you will do when your deal ends. Consider fixing your rate for a longer period of time, or you may want to switch to a variable-rate mortgage. However, it is important to research and compare different deals before making a decision.
What’s happening to UK mortgage rates?
Mortgage rates in the UK have risen since December 2021, largely due to the Bank of England’s (BoE) 12 consecutive base rate rises. The base rate is the interest rate that the BoE charges commercial banks for loans, and it is used as a benchmark for other interest rates, including mortgage rates.
Mortgage rates began to surge after last year’s mini-budget as the markets panicked over unplanned government borrowing. The average interest rate jumped to a 14-year high, peaking at 6.55% at the end of October 2022.
However, despite the BoE raising the base interest rate multiple times since then, mortgage rates have started to fall from their October high. This is due to a number of factors, including the slowdown in the UK economy and the Bank of England’s recent decision to pause its interest rate-hiking cycle.
It is still too early to say whether the recent fall in mortgage rates will continue. However, if the UK economy continues to slow, mortgage rates will likely remain relatively low for the foreseeable future.
Is now a good time to get a fixed-rate mortgage?
Variable-rate mortgages, such as tracker mortgages and standard variable rate (SVR) mortgages, are linked to the Bank of England’s base rate. This means your mortgage rate will increase when the base rate increases too, and vice versa. This can make your monthly repayments unpredictable.
While the cost of a mortgage is not the only factor to consider, it is important. And with the Bank of England predicting that mortgage rates will keep going up this year, it is a good idea to consider locking in a fixed-rate mortgage.
Fixed-rate mortgages offer you peace of mind, as you know exactly how much your monthly repayments will be for the duration of the fixed period. This can be helpful if you are on a tight budget or want to ensure your mortgage payments are affordable.
However, it is essential to note that fixed-rate mortgages are more expensive than variable-rate mortgages. So you need to weigh the pros and cons before deciding.
How does remortgaging work, and can it save you money?
Remortgaging is when you switch your mortgage to a new lender. This can be a good way to save money if you can find a deal with a lower interest rate.
To determine if remortgaging could save you money, you need to compare the interest rates on your current mortgage with those on other deals. You can do this using a mortgage comparison website.
If you find a deal with a lower interest rate, you must do the math to see if it is worth switching. You need to consider the following factors:
- The difference in interest rates
- The early repayment fees (if any)
- The length of the new deal
If the difference in interest rates is large enough, and the early repayment fees are low, then remortgaging could save you money.
However, it is important to remember that remortgaging can be a complex process. You should speak to a mortgage broker to get advice before deciding.
Should I stay on my lender’s standard variable rate?
There are pros and cons to staying on your lender’s standard variable rate (SVR) or remortgaging to a fixed-rate deal.
Pros of staying on the SVR:
- You can get a lower interest rate than with a fixed-rate deal.
- You have more flexibility; you can overpay your mortgage or take out a further advance without penalty.
Cons of staying on the SVR:
- Your interest rate could increase if the Bank of England raises the base rate.
- You won’t be protected from rate rises for the length of the deal.
Pros of remortgaging to a fixed rate deal:
- You’ll know exactly how much your monthly payments will be for the length of the deal, even if interest rates go up.
- You can get a lower interest rate than with the SVR.
Cons of remortgaging to a fixed rate deal:
- You may have to pay early repayment charges if you need to switch before the deal ends.
- You may be less flexible, as you cannot overpay your mortgage or take out a further advance without penalty.
Whether to stay on the SVR or remortgage to a fixed-rate deal depends on your circumstances and risk appetite. If you’re worried about interest rates going up, remortgaging to a fixed-rate deal may be your best option. However, if you’re happy with the SVR and want more flexibility, staying on the SVR may be the better option.
It’s important to do your research and compare different deals before making a decision. You can use a mortgage comparison website to compare interest rates and fees from different lenders.
Why did mortgage rates shoot up last year?
Mortgage rates shot up last year due to a number of factors, including:
- The pound’s value fell sharply after former chancellor Kwasi Kwarteng’s controversial September mini-budget. This made borrowing in pounds more expensive, leading to higher mortgage rates.
- The Bank of England raised the base rate several times in 2022 in an attempt to control inflation. This also led to higher mortgage rates.
- The housing market was very hot in 2021, which led to increased demand for mortgages. This also put upward pressure on mortgage rates.
The combination of these factors led to a sharp increase in mortgage rates in 2022. This has made it more expensive for people to buy homes and has also led to concerns about a potential crash in the property market.
Should I get a five-year fixed-rate mortgage?
There are pros and cons to getting a five-year fixed-rate mortgage.
Pros:
- You will have certainty for longer and will be protected from potential future mortgage rate increases.
- The average interest rate on a five-year fixed-rate mortgage is only a fraction lower than the average interest rate on a two-year fixed-rate mortgage.
Cons:
- If mortgage rates fall, you will be stuck paying a higher rate.
- If your plans change and you end up moving, you will usually need to fork out for early exit charges.
The decision of whether to get a five-year fixed-rate mortgage depends on your individual circumstances and risk appetite. Getting a five-year fixed-rate mortgage may be your best option if you are worried about interest rates going up. However, if you are happy with the two-year fixed-rate mortgage and want more flexibility, then getting a two-year fixed-rate mortgage may be the better option. 
It’s important to do your research and compare different deals before making a decision. You can use a mortgage comparison website to compare interest rates and fees from different lenders.
