Time to Re-mortgage?

Time to remortgage?

When a cost goes up tenfold in six months, it’s never good news. The Bank of England base rate that influences most mortgages is only moving in one direction, but what does it mean for homeowners? The Bank of England base rate has gone up four times since December, taking it from 0.1% to 1%. While that technically affects the cost for banks to borrow from the Bank of England and each other, the base rate is also a key component in how much banks charge for mortgages.

How does that affect me?

To sum up the effects: ‘tracker’ mortgage rates will increase automatically after a base rate rise. Variable rate mortgages are at the bank’s discretion but usually change in line with the base rate. While fixed rate mortgages remain unchanged, the base rate will affect the deals on offer for people looking to remortgage.

Should I fix now?

Unless you think the base rate is going to fall significantly in coming years – and there’s still not much room for any decrease – remortgaging may well save you cash and give you peace of mind. Don’t forget to take into account any fees, such as an exit fee for ending your current mortgage or an early repayment charge, if you want to leave before a fixed-rate period is up. The latter means you need to time things carefully to minimise overall costs. Working out the best deal and weighing up these charges can be complicated, so it’s worth considering using a mortgage broker, particularly if you have nonstandard circumstances such as being self-employed or having a patchy credit history. If you’ve still got several years left in a fixed deal, it’s unlikely remortgaging is going to save you money right now. Congratulate yourself on your foresight and/or luck and make a note in your calendar to start planning your next move when you have six months or so left to go. If you are on a variable deal right now, the base rate rises should be a reminder to take another look at fixing. To put things in context, if you’re on a tracker or variable deal with more than £133,333 left to repay, the base rate rises since December are already costing you £100 more each month. And remember that none of that extra money is paying off the loan itself.

Every cloud…

The good news for all homeowners looking to remortgage is that you’re now a safer bet for lenders than when you first bought. That’s because the amount you still owe (and would need to borrow to remortgage) has fallen while, in most cases, the value of your home has increased. That dramatically reduces the risk for the lender that they’d be unable to recoup their money if they had to repossess and sell your home. There’s no guarantee, but that could mean you can secure a more favourable rate.