The combination of rising property values and low mortgage rates make it a good time to consider refinancing home Loan, particularly if you haven’t done so for a while. While high inflation could mean interest rates start to rise, locking into one of the many cheap fixed-rate mortgage deals available could save you money in the long run.
With the Northern Line extension opening this week, house prices around Nine Elms and Batter sea Power Station are predicted to rise by 25 per cent over the next five years. Not to be outdone, rents are predicted to climb by 14 per cent too, according to research from property group JLL. Elsewhere in the capital, prices continue to rise, although admittedly not on the same scale. Prices increased by 2.2 per cent in the year to July, according to the Office for National Statistics, less than the stellar performance of the Northeast (10.8 per cent) and the average across the country as a whole (8 per cent).
Meanwhile, mortgage rates continue to fall across the loan-to-value (LTV) bands. With the best rates available to those with the biggest deposits or similar levels of equity in their homes, those homeowners who haven’t remortgaged in a while may be pleasantly surprised to find they qualify for a lower LTV band and therefore a cheaper rate.
The potential blot on the horizon as far as mortgage rates are concerned is inflation. It continues to rise at a pace – in August it jumped by 1.2 percentage points to 3.2 per cent. Its highest level since 2012. With the Bank of England forecasting that inflation will hit 4 per cent by the end of the year. Double its 2 per cent target, there are worries that this could mean higher interest rates. With the Bank of England base rate sat at 0.1 per cent since March 2020. Interest rates haven’t moved in a while, but could that be about to change?
Nobody knows for sure but borrowers can protect themselves from rising mortgage payments by opting for a fixed rate. The good news is that competition among lenders is high. As they have plenty of money to lend and are keen to do so. The subsequent spate of reductions in mortgage rates mean two-year fixes are available from less than 1 per cent and five-year fixes from less than 1.5 per cent.
However, borrowers should be careful of fixing for longer than they are absolutely sure about. As there can be hefty early repayment charges if you need to get out of the mortgage early. In other words, don’t fix for five years if there is a chance that you will want or need to move before that time has elapsed. You may be able to ‘port’ the mortgage or take it with you to your new property but there is no guarantee of this.
As well as looking at the rate and potential ERCs, borrowers should consider fees. The cheapest rates can come with the largest fees. This isn’t always a bad thing, and it can be worth paying the higher fee to get the cheaper rate. Depending on the size of your mortgage. But you do need to factor in all fees as well as the rate when comparing mortgage deals. Some lenders will throw in free legals or a free valuation for those remortgaging. But don’t be swayed by these offers alone. Work out the total cost of the mortgage and compare it with others.
Some borrowers are also breaking existing deals. Paying the ERC to get out of the mortgage and onto a cheaper, long-term deal. This might make sense if you manage to lock into a much cheaper rate. But you need to crunch the numbers beforehand.
If you are coming up to remortgage, or haven’t done so in a while, it is worth seeking advice from a whole-of-market broker such as AWS Private Finance. We will identify the right lender for your particular situation. Whether you are employed, a small business owner or a day-rate contractor. We will compare all the costs and find you a competitive deal. Guiding you through the process from start to finish, saving you time and hassle. Get in touch to find out more.