Martin Lewis on remortgage Monday
Mortgage rates are at rock bottom – the cheapest since 2017 - some have even limboed under 1%. So according to our Money Saving Expert Martin Lewis, EVERYONE with a mortgage should check now if they can switch and save £1,000s. Here’s how…
The UK and world's economic uncertainty has a silver lining for mortgage holders. Long term interest rate forecasts are low right now, and these feed into the mortgage rates lenders offer. In the last week we’ve seen the cheapest 2 year fix is 1.05% from Halifax and cheapest 5 year fix at 1.44% from Skipton and TSB, all the lowest we've seen since 2017. There's even a 2 year tracker at 0.98% from Halifax.
These deals all have specific terms, need decent equity and to pay a big fee, so see them more as a totem of how competitive the market is.
So everyone with a mortgage should check now if you can switch and save. The impact can be huge. As Sam kindly tweeted "Thanks to @MartinSLewisI try to be financially savvy. I’ve just fixed my mortgage for 5 years, saving £160 per month.Nearly £10,000 saved over the fixed period. Wow."
And after I very briefly mentioned this on Good Morning Britain last week, I got this from David, “Watched you this morning before going to work about mortgage savings. Phoned our mortgage company, 25 minute call saving £137 a month thank you Dave”.
So what do you need to know to find your cheapest deal?
1) First check how much your current mortgage costs and is it about to end?
If you're remortgaging (ie, switching to save), it's good to understand how your current deal works to see if it's worth switching. If buying a home, it's also important to know the following about your prospective deal to help compare:
a) What's the rate? Plus monthly payments and outstanding debt.
b) What type is it? Fix, tracker, discount, SVR (the rate - usually much higher - most fixes and trackers revert to after an intro deal ends).
c) When's the intro deal over? Eg, when does the 2yr fix end exactly?
d) How long's the full mortgage term? When must it be fully repaid? Eg, in 10, 15, 25 years.
e) Will I be penalised? Any early repayment/exit penalties?
Critically, work out your current loan to value (LTV) - the proportion of your property's CURRENT value you're borrowing. Eg, £90k on a £100k property is 90% LTV. Generally, for each 5% your LTV drops, usually until 60%, the cheaper the deal.
So if your home's increased in value, since you got your mortgage, you may gain. Or if you’ve savings that you can use to reduce the amount you’re borrowing, that can help too.
2) Benchmark your cheapest deal with a mortgage comparisonIf your rate's about to end, ask your existing lender what its best deals are. These can have low fees as you're not switching between lenders, so don't need to pay costly fees - and it can set a benchmark for what to beat.
Otherwise, for an easy benchmark of what’s available in your circumstances, start with a comparison site that includes all deals, including ‘direct only’, those that aren’t offered by a broker. These include Martin’s ‘Mortgage Comparison’ or sites such as MoneyFacts.co.uk.
Don’t just focus on rate though, the smaller your mortgage, the bigger the impact of fees. A good way to compare mortgages is to divide the fee across the discount or fixed period. So a £1,200 fee on a two-year (ie, 24-month) deal is £50 a month – then add that to the monthly repayment.
3) What counts these days though, is will you be accepted
In the good/bad old days of easy credit lenders would fling out deals to all and sundry are long gone, getting accepted is now the challenge. There are two key elements to this...
Is your credit score good enough? Your credit history is a huge part of whether you'll be accepted for any type of credit, including a mortgage. So be careful before applying not to make too many applications for other credit, and never miss a repayment.
Are the repayments affordable? For the past couple of years, lenders won’t just check if you can afford the monthly repayments at the current rate, but they’ll also stress test affordability if rates were 6% or 7%. So it’s really important you reel in your spending months before applying, as lenders will want evidence of income, big bills, expenses and even eating out.
To help match your characteristics to which mortgages are available is something a good mortgage broker can do that you can’t do yourself. But do ask if the broker will check all deals available to them and not just a panel of lenders.
Also, check how much using a broker will cost and ensure you use a qualified one. For face-to-face help ask friends for local broker recommendation or use Unbiased orVouchedFor to find one. There are fee free brokers (they take a commission from the lender) available on the phone such as London & Country Mortgages.
Which should people go for – a fix or variable rate?
The advantage of a fix is you get price and budgeting certainty that the rate won't move for a set time. Whereas variable deals move with the UK interest rate (and sometimes just at the provider's whim).
Generally you pay a little more to fix, but not much. Ask yourself how much you think rates will rise over the period. If safety's what is important for you, err on the side of fixing, and fixing for longer – and right now with fixed deals being outrageously cheap, and there being a lot of uncertainty out there, this is a good time to look at it.
And if you can get a long fix for not much more than a short one, that also gives you a level of certainty.