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Market Analysis: Why Now Is The Time To Remortgage

Market Analysis: Why Now Is The Time To Remortgage

With Christmas around the corner and a potentially game-changing election just weeks away, you will be forgiven for thinking that now is the perfect time to rest on your laurels, forget about your mortgage, and wait out the coming storm with eggnog in hand. This belief, however, is based on a fallacy – namely, that inaction is always the safest course of action in times of uncertainty. While true under certain conditions, this is almost certainly not the case as things currently stand.

Unprecedented Rates  

The facts on the ground are as follows: mortgage rates are currently as low as they have been in years; this low rate environment is likely to persist until the end of the year; beyond this point, anything could happen, though with rates as low as they currently are, there’s little room for them to go down and plenty for them to go up.

These low rates can be seen in almost every region of the market. Last week, for example, a new two-year fixed, home-mover product came onto the market that has a rate of 1.05% available at loan-to-values of 60% and under. This is 0.14% lower than any other product currently available and the lowest rate seen on the market since 2016.

But this is not only true of two-year fixed products: the five-year fixed market is also currently brimming with highly competitive rates. In fact, at 1.44%, the market-leading five-year fixed product is at its joint lowest level since 2017. Moreover, there are currently a greater number of five-year fixed products with rates under 1.5% than ever before.

The reasons for this current low rate environment are quite straightforward: the purchase market has been very slow over the past year as a consequence of Brexit; this has resulted in lenders being unable to lend their funds, and they are now, in November, frantically competing through rate-cuts and criteria-relaxation to meet their end of year targets. This is likely to make the next couple of months an absolute bonanza for borrowers.

But these favourable market conditions are unlikely to continue into the new year. Not only does the new year mean new targets for lenders, reducing pressure to lend, but it is also likely to bring with it – sooner or later – some kind of a resolution to Brexit. Once this happens, the pent-up demand of the property market will be released, and demand for purchase mortgages will increase sharply, draining lenders of their surplus funds.

If you are looking for a bargain on your mortgage, therefore, now is the time to act.

Standard Variable Rates

The current low-rate environment should be enough on its own to encourage borrowers to assess their mortgage situation before such deals dry up. But there’s an additional reason to do so which applies in almost any remortgage situation, regardless of market conditions: If the initial period of your mortgage is due to end imminently and you allow your loan to revert to your lenders Standard Variable Rate (SVR), you could find yourself paying hundreds or even thousands of pounds per month in unnecessary interest payments.

Consider the following example: You have a mortgage of £300,000 with 23 years left on its term which is soon due to reach the end of its initial period and revert to your lender’s SVR of 4.9%[1]. You have two choices: you either allow this to happen, biding your time until the new year, or you remortgage. [2]

If you choose to remortgage onto the market-leading remortgage product with a rate of 1.19% rather than revert to your lender’s SVR, you could save almost £600 a month in mortgage payments and around £900 a month in interest payments.

This example is, of course, the best-case scenario – not everybody will be eligible for this 1.19% two-year fixed product – but the point it illustrates still stands. Allowing your mortgage to revert to your lender’s SVR is highly inadvisable at almost any time, and never has this point been truer than now, with rates as low as they currently are.

This low rate environment, however, is not only a boon for those whose initial terms end in the next couple of months. Rates are currently so low that it may in fact make financial sense for you to pull out of your current mortgage deal, incur your lender’s early repayment charges (ERCs), and remortgage onto one of these market-leading products. For example, if you have a mortgage balance of £300,000, an interest rate of 2.2%, and ERC’s of 1%, you could save yourself up to £7k over the next five years by remortgaging onto one of the new 1.5% five-year fixed products. [3]

Lifetime Trackers

Alternatively, imagine you are on a lifetime tracker mortgage which, by definition, never reverts to your lender’s SVR. Suppose this product comes with a rate of base rate + 1%. At the moment, you will therefore be paying 1.75%. Despite this very competitive rate, you could save yourself a significant amount of money by remortgaging onto one of the aforementioned fixed-rate products – possibly a five-year fixed-rate loan of 1.5% hi – while also enjoying the security that such products supply. It is perfectly conceivable, after all, that the base rate will rise at some point over the next five years and that your mortgage payments will rise commensurately.

The Upshot

Rates are currently at their lowest level in years and look set to remain here for the remainder of the 2019. Beyond this point, the outlook is less certain, though it seems very unlikely that these rock-bottom rates will continue far into 2020. Taking advantage of these rates today, therefore, is a matter of some urgency and could save you potentially thousands of pounds over the coming years in interest payments.

If you would like to speak to a qualified mortgage advisor to work out if you could benefit from the current low rate environment, you can speak to one of our qualified consultants by calling us on 0800 980 8777 or by emailing us at info@privatefinance.co.uk.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

 

 

 



[1] The average SVR at the moment

[2] If you allow a mortgage of this size to revert to an SVR rate of 4.9%, you will be paying £1,814 a month in mortgage payments. Of this, £1,212 will go towards paying the interest of your loan, with the remaining £602 going towards paying off the principal. Conversely, if you remortgage to Natwest’s market-leading remortgage product with a rate of 1.19%, you will be paying £1,243 a month, of which only £292 will go towards paying off the interest of the loan and £951 will go towards paying the principal. This ultimately means that if you have a mortgage of £300,000 and you choose to remortgage onto this market-leading product rather than revert to your lender’s SVR, you could save almost £600 a month in mortgage payments and around £900 a month in interest payments.

[3] In this example, you will incur ERC’s of £3,000 if you pull out of your current deal. If you remortgage today onto one of these five-year fixed products with a rate of 1.5%, you will pay £20,202 in interest over the next five years. Conversely, if you remain on your current rate, forego the low rates the market currently has to offer, wait until next year, when rates are likely to have risen, and remortgage onto a product with an identical rate to your current one, you will pay £29,846 in interest payments over the next five years. Remortgaging today could therefore save you almost £7,000 over the next five years. This example is, of course, conjectural – we do not know where rates will be this time next year – but, again, it serves to illustrate the point at hand.

 

Market Analysis: Why Now Is The Time To Remortgage

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YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

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