this is how you remortgage to get the best deal

For most people the financial situation currently in the UK is not something to be overly positive about. Inflation, services are becoming more expensive… and then you have a look at the latest remortgage rates.

For those who currently have a mortgage and their fixed deal is coming to an end – this is clearly bad news. A couple of years back you could get a 2 year fixed deal for under 2%. Currently, the average 2 year fixed deal sits at roughly 6.5%.

For someone with a mortgage of roughly £200,000 this can add £400-600 per month. Definitely not the figure anyone was expecting to splash out.

Below I will give my view on what is likely to happen next. I will also give some advice based on my personal experience on what options you have in order to secure yourself the best deal possible.

Below options won’t give you a 4% rate. Some of these tips however will be able to save you over £100 per month if you follow the below steps.

why are mortgage rates going up?

Simple answer to this is – inflation! As the inflation keeps going up, the Bank of England has to increase its rate. This is done due to there being a correlation between higher interest rates and inflation being suppressed.

Once the central bank increases its rate – this get’s passed on to high street banks and other lenders. This results in borrowing cost going up.

What happens next – the increased interest rates are baked into mortgage rates and are passed on to the end consumer.

While tackling the inflation is an important thing to do – the result of this is always the same. It is the end consumer that gets to pay the price for doing so.

The long list of recent U-turns in the government does not help this either. As there was very little confidence and certainty in the future of UK finances – this pushed the rates up at an even greater pace.

what is likely to happen with remortgage rates next?

Just this week the latest figures for the inflation rate were published. And unfortunately the news weren’t great. Inflation is over 10% as it currently stands.

While I don’t have a crystal ball to tell the future, my best guess is as follows. The Bank of England will continue with its interest rate hike journey. What this will most likely result in the following – most lenders will pass this increase on to consumers over and over again.

While I don’t have a fortune teller skills – many economists agree with the above being the likely outcome.

It is currently forecasted that the Bank of England will keep pushing its rates and these will top at just over 5% early next year. If this is true – I wouldn’t be surprised to see mortgages at 8-9% or even early double digit.

look to remortgage early

There is a way you can try to reduce your mortgage rate even before you actually remortgage. This is something I have done myself and would really encourage you to do as well. 

If your mortgage is due to expire soon the following steps are what you should do. 

Firstly, you can look to lock in a mortgage rate up to 6 months ahead of your current mortgage finishing. This will depend on the lenders rules. A mortgage adviser will be able to help you find the ones who offer this.

I personally have used these guys to help me with my remortgage. Their services are free and the staff so far seem helpful and friendly as well.

What happens next – is up to you. Once you are approved for the mortgage at the best available rate at the time you can decide if you want to actually take the mortgage or not. You have the flexibility and the power to exercise it or not.

keep an eye on the rates while you wait

The following 6 months are a bit of a waiting game. As you are finishing and paying your current mortgage off and waiting for the new one to kick in.

One thing I would suggest you do occasionally – check the market and what are the mortgage rates looking like. This can provide to be really beneficial for you. 

If you manage to find a better rate during the 6 month wait time – you can re-apply and there are no penalties with the previous mortgage that you applied for.

This in a way gives you the best of both worlds. On one hand – you have a mortgage rate locked in well in advance. On the other hand – you have the flexibility of continuing to shop around in case you find a deal that is better. 

review the remortgage offer from your current lender

One further step to do – review the offer you will receive from your current lender. They will normally make this available for you roughly 3 months ahead of the expiry of your current fixed deal.

Once again, the logic here is similar to the paragraph above. As you already have a mortgage offer in place – you simply compare the 2 mortgages and pick the ones that works out the cheapest.

You can even pick up the phone and chat to your current lender – discuss the product they are offering you. If their offer is worse than the one you have – be honest about it. Explain the situation to your lender.

This way the ball is in their court to decide if they want to make you a better offer or if they are happy to lose a customer.

don’t forget about your credit score

Ideally ahead of the application process you want to make sure your credit score is in good place. This can also help you get a better rate locked in.

There are some really simple things you can do that will boost your score in relatively short period of time. One example is – getting on an electoral roll.

This simple step takes only 5 minutes to do while the benefit you get can be really significant.

consider reducing your mortgage balance slightly

One further thing to consider is the remaining balance on your mortgage. This hack is not something that everyone considers when going through a remortgage.

As a standard – lenders offer better rates when your loan to value of your home drops. The more of your home is actually owned by you rather than the bank – the less risky you are seen.

So for every 5% reduction in loan to value you get a better mortgage rate. Let me give you an example of this below.

Let’s say your home is worth £300,000. And the outstanding mortgage balance on your property is £211,500. This makes your LTV 70.5%. What could unlock you a better rate is getting that LTV just below 70%.

In the example above – your outstanding mortgage balance should become less than £210,000. So, if you were able to put a one off payment of £1,500 towards your mortgage – this could give you a significantly better mortgage rate.

This rule only works as you keep reducing your LTV down to 60%. Any further mortgage reduction don’t normally give you an additional benefit.

This is once again something a mortgage advisor will be able to help you with. They will even be able to provide you an illustration of what your new mortgage rates would be. This will make it easier for you to decide if you want to go down this route.

can offset mortgage be just the right thing for you?

Another option to reduce your mortgage is through an offset mortgage. This is a mortgage that uses your savings to offset your mortgage balance.

Effectively this reduces the outstanding balance that the interest rate will be applied to. As a result of this – you can save yourself a decent chunk of cash.

Once again, the mortgage advisor you decide to go ahead with should be able to give you a view if this type of mortgage is right for you based on your personal circumstances.

summary

While the current financial situation in the country isn’t the best and rates are rising finding a mortgage deal is something everyone will have to deal with eventually.

I am most certain that the new mortgage you will get will be more expensive than the one you currently have. And this will be something you will have to adapt to.

One thing you can however do – follow the process above to get the least bad mortgage rate of the ones that will be available to you. A difference of 1% in the mortgage rate can be a difference of as much as £200 per month for someone with a £200,000 mortgage balance.

Investing some time into this process early and getting the best rate available is an exercise definitely worth doing.

Use this mortgage calculator to play with different scenarios to understand what an increase in rate will actually be worth. Being ready and geared up is extremely important in these unprecedented times.