Everything you need to know about remortgaging in the current economic climate - according to a finance expert
by Derin Clark
With what is happening in the UK right now, remortgaging will likely not be top of your priority list. But, with many people’s finances expected to take a hit over the coming months ensuring that you’re paying as little for your mortgage as possible may help to ease the financial burden.
The Bank of England recently and unexpectedly announced a base rate cut by 0.50% (50 base points), cutting it from 0.75% to 0.25%. Normally, this would be good news for mortgage borrowers as it makes the cost of borrowing money cheaper, which usually results in mortgage lenders dropping their mortgage rates.
Saying this, over the last 12 months the mortgage market has been very competitive which has resulted in many mortgage lenders with very close margins which might mean that they are unable to cut their rates anymore.
The first mortgage borrowers to see a benefit in base rate cuts are those on a tracker mortgage. Unlike fixed rate mortgages, which is what a vast majority of borrowers opt for, a tracker mortgage rises and falls depending on base rate. This type of mortgage is often considered riskier than fixed mortgage deals, especially as the rate can rise quickly if base rate is increased.
The recent base rate cut seems to have already impacted tracker mortgage rates, as research carried out by Moneyfacts.co.uk found that the average rate on a two-year tracker mortgage fell by 0.15% in just one week, decreasing from 2.03% on Tuesday 10 to 1.88% on Tuesday 17 March 2020.
While this might make remortgaging on a tracker mortgage attractive, borrowers should be aware that the 0.5% base rate cut is only being passed on to those with an existing tracker mortgage.
Those thinking about taking out a new tracker mortgage should ensure that they are also getting an attractive deal as some mortgage lenders, such as Nationwide, have actually increased the tracker mortgage rate for those taking out a new tracker mortgage.
Fixed rate mortgages
Fixed rate mortgages have been a lot slower to pass on the base rate cut to borrowers. Comparing the average mortgage rates from Tuesday 10 and Tuesday 17 March 2020 found that the average two-year fixed rate on all loan-to-value (LTV) mortgages fell by just 0.01%, from 2.43% to 2.42%.
This was also the case with the average five-year fixed rate on all LTV mortgages which dropped by 0.01%, from 2.74% to 2.73%. While it can take up to three months for lenders to pass on base rate cuts to borrowers, as already highlighted, at the moment competition within the mortgage market is already intense, so lenders might not have the capacity to pass on further cuts to borrowers
What does this mean for those looking to remortgage?
For mortgage borrowers coming to the end of their mortgage deal or who are already on a standard variable rate, this is the perfect time to consider remortgaging.
Rates are already low and, even with a base rate cut, it is unlikely that they will fall much lower. In the current competitive mortgage market, many lenders are offering highly attractive deals for those looking to remortgage.
For example, Royal Bank of Scotland currently offers a rate of 1.51% fixed until 30 June 2022, available for those looking to borrow £160,000 on a property valued at £200,000.
This deal not only has a competitive mortgage rate, but also borrowers free valuations, no legal fees and £250 cashback as part of the deal. It charges a product fee of £995 and after the initial fixed term ends reverts to a rate of 4.24%. Furthermore, this deal can be applied for directly by the borrower online.
NatWest also offers a similar competitive deal, offering a rate of 1.51% fixed until 30 June 2022 for those looking for an LTV of up to 80%. This deal also includes free valuations, no legal fees and £250 cashback. It, again, charges £995 in product fees and after the fixed term ends reverts to 4.24%.
Alternatively, for those looking for a longer term fixed rate but again borrowing £160,000 on a property valued at £200,000, Lloyds Bank offer 1.75% fixed until 31 May 2025. A free valuation, no legal fees and £250 cash back are included. This deal charges £999 in product fees and, after the fixed term ends reverts to 3.74%.
Clearly, there are some highly competitive remortgage packages available at the moment, which, for those coming to the end of their mortgage deal or for those on a standard variable rate, could help to reduce their monthly outgoings.
To see all the remortgage deals currently available visit Moneyfacts.co.uk