Considering a remortgage for your home in 2023: Are you ready to take advantage of the changing interest rates?
Over the past year, interest rates have been on the rise as the Bank of England (BoE) works to manage inflation. If your current mortgage deal is coming to an end or will soon expire, you might be wondering if now is the right time to explore new options or if it's better to wait.
This year, approximately 1.4 million fixed-rate mortgages are set to end, and it's unlikely that the interest rates offered on new deals will be as competitive as those secured two or more years ago.
Surprisingly, recent data from Uswitch reveals that over half of the fixed-rate mortgages up for renewal this year were secured at interest rates below 2%. Homeowners searching for a new deal will find it challenging to match those rates in today's market.
So, if you're considering remortgaging your home, you have a choice: Should you take action immediately or wait to see if interest rates start to decrease later in the year?
Let's delve into the advantages and disadvantages of pursuing a new mortgage in 2023.
3 compelling reasons to consider remortgaging now
1. Unlock a lower interest rate compared to the standard variable rate (SVR)
When your current mortgage deal expires, you'll typically be shifted to your lender's standard variable rate (SVR). Unfortunately, SVRs are generally less competitive and could mean you end up paying thousands of pounds more each year than necessary.
By exploring new deals, you have the opportunity to save money. While several factors influence the interest rate a lender will offer, remortgaging could secure you a better rate than the SVR.
As of May 2023, Uswitch reports that the average SVR in the UK stands at 7.75%. Keep in mind that this figure may vary. However, if you opt for remortgaging, you increase your chances of obtaining a more favorable rate.
2. Potential advantages if interest rates continue to rise
Over the past 18 months, the BoE has raised the base interest rate multiple times. In November 2021, the base rate stood at a mere 0.1%. Fast forward to May 2023, and it now sits at 4.5%.
With inflation remaining high, there is a possibility that the BoE may raise the base rate further. If you haven't remortgaged and are paying your lender's SVR, a rate hike could impact your monthly repayments.
However, by opting for a new mortgage deal, especially a fixed-rate option, you can lock in an interest rate for a specified period, typically two, three, or five years. This way, remortgaging offers you protection against future rate increases and the potential to save money.
3. Secure predictable payments for peace of mind
Besides the potential cost savings, taking out a new fixed-rate mortgage deal can provide you with peace of mind. Many homeowners find comfort in knowing their monthly repayments in advance, allowing for better budgeting and financial planning.
3 considerations to keep in mind before remortgaging
1. No advantage if interest rates decline
While interest rates have recently been on the rise, there's no guarantee that this trend will continue. The BoE may even choose to lower the base rate.
In such a scenario, if you have already remortgaged, especially with a fixed-rate option, you may not reap the benefits of a rate decrease. Therefore, if you believe interest rates might fall, it might make sense to wait before pursuing a remortgage.
2. Potential trade-offs in flexibility
Typically, when paying an SVR, you enjoy more flexibility for overpayments. It means you have more freedom to make extra payments or pay off a lump sum as you wish. However, when you have a mortgage deal in place, there may be certain restrictions on overpayments. For instance, some lenders allow you to overpay up to 10% of the outstanding mortgage each year without additional charges.
So, before finalizing a decision, consider your financial goals and the level of flexibility you desire. Assess the potential costs of staying on your lender's SVR versus opting for a new mortgage deal.
3. Potential mortgage arrangement fees
It's important to be aware that if you choose to pursue a new mortgage deal, there may be associated mortgage arrangement fees, especially if you're aiming to access a lower interest rate. These fees can vary, so it's crucial to factor them into your decision-making process.
Seek guidance from a mortgage broker
If your mortgage deal is coming to an end this year, it's crucial to carefully evaluate your options. Keep in mind that there isn't a one-size-fits-all solution for every homeowner, so take the time to consider what matters most to you.
To navigate through the various choices and understand their implications on your finances, it can be immensely helpful to consult a mortgage broker. They can provide valuable insights and guide you in selecting a mortgage that aligns with your needs, giving you confidence in your financial future.
