What next for your mortgage?

With the Bank of England holding interest rates this month at 5.25 per cent, for the fifth meeting in a row, calls are increasing for members of the Monetary Policy Committee (MPC) to start cutting rates. Money markets now suggest there is a 20 per cent chance that rate cutters will start reducing rates in May, the first reduction since the pandemic.

Governor Andrew Bailey said last week that rate cuts are on the way as inflation comes under control. He added that it was “reasonable” to expect two or three cuts this year. It meant that the MPC voted 8-1 to hold rates, with two members dropping previous calls to raise rates, and was the first meeting since September 2021 where none of the members voted to increase rates.

Economists at KPMG are forecasting that the Bank of England will reduce interest rates to 3 per cent by the end of next year as inflation is expected to drop sharply. But what does this mean for your mortgage?

Question: I am on a variable rate waiting for mortgage rates to come down before fixing – what should I do?
Answer: Some borrowers, who don’t need the certainty of a fixed rate to help with budgeting, opted for a base-rate tracker mortgage with no early redemption charges in the hope that they could move onto a fixed rate once pricing improves.

If you are in this position, it is worth keeping a close eye on rate movements and reviewing your tracker in Q2/Q3 to check whether you would be better off moving onto a fixed-rate mortgage. Currently, you are likely to be paying more per month than you would on a fixed rate so it’s something that should be closely and regularly reviewed so that you move at the right time.

Q: I fixed last year; my mortgage is now looking expensive. What can I do?
A: It may be worth reviewing your mortgage and considering re-fixing onto a cheaper deal, depending on whether it’s cost-effective for you to do so. At AWS Private Finance, we can run the numbers for you at no obligation to see whether you would save money even if you had to pay the early redemption charge (ERC) in order to move onto a cheaper deal. Generally speaking, if the new mortgage rate is 2 percentage points lower and the ERCs are 1 percent, a switch may be worth considering.

Q: I want a fixed rate but am not sure how long to fix for?
A: It depends on your circumstances whether you opt for a two or a five-year fix (or longer), as well as what you think will happen with interest rates. Some clients are opting for shorter-term fixes of two years rather than five in the hope that by the time they come to remortgage, rates will be lower and they can lock in for longer at a more palatable rate. It does mean having to remortgage more often but gives the peace of mind of knowing you are not locked into a high rate for too long. Alternatively, there are those who are opting for five-year fixes because they don’t want to worry about their mortgage, they just want to know how much they need to pay for an extended period of time to assist with budgeting.

Q: I am due to remortgage later this year – when should I start looking around for a new mortgage?
A: Rates can be reserved up to six months before you need them so make a diary note of the date your mortgage deal runs out. If you don’t get organised in time, you could end up moving onto your lender’s much higher standard variable rate, so it’s important to keep on top of this. Your broker at AWS Private Finance should be in touch well before your existing deal expires to discuss the options available. If a rate is reserved several months before you need it, you can always move onto a cheaper rate when required if one becomes available – this is another advantage of using a broker as they will keep on top of rate movements and advise you accordingly.

Best buy remortgage rates (all at 60% loan-to-value)
Rate Type
4.39% two-year fix
4.49% three-year fix
3.99% five-year fix
4.76% 10-year fix
Source: Moneyfacts

It is important to review your mortgage on a regular basis. For most, it’s their biggest outgoing so you don’t want to pay more than you need to. This is where AWS Private Finance can help – we are a whole-of-market broker who can access all the deals on the market. We help you plan ahead, recommending the best deal for your circumstances.