Do you have to pay off your mortgage if interest rates fall? Guide for starters and movers
Mortgage rates may be falling, but millions of people are still facing a shocking increase in bills.
Major lenders including Barclays, Halifax, HSBC and Nationwide have recently cut interest rates, with some deals now below 4 per cent.
However, homeowners will still see an increase in costs.
Harriet Meyer explains what's happening and how to navigate the mortgage market.
WHAT HAPPENS TO MORTGAGE PRICES?
Mortgage rates are at their lowest level since June, which is good news for starters.
David Hollingworth, of broker L&C Mortgages, said: “Lenders have announced a series of rate cuts which will help ease things.”
Nationally, rates fell to 3.84 percent this week.
The average two-year fix is now 5.56 percent MoneyfactsCompare.nland a typical five-year correction is 5.18 percent.
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WILL COSTS FALL EVEN LOWER?
Unfortunately, mortgage rates are unlikely to fall much further this year.
The recent fall in costs reflects expectations that the Bank of England will cut the base rate from the current level of 5.25 percent later this year.
Ben Thompsondeputy director of real estate agency Mortgage Advice Bureau, says: “The picture looks much more positive than last year, but it comes with some caution.
“Who knows what the year has in store, with global conflicts, the budget and elections.”
And with the average mortgage rate now above 5 percent, borrowers will likely be in for a shock if they refinance based on the low interest rates available before 2022.
According to the Resolution Foundation, approximately 1.5 million homeowners will reach the end of their life by 2024.
The think tank says average annual costs will rise by around £1,800 for an average family switching to a new mortgage rate this year.
DON'T WAIT FOR YOUR DEAL TO END
You can determine a new rate up to six months before the end of your mortgage.
First check the rate offered by your existing lender and compare it with the market.
Sticking with your current lender can be easiest if they offer a good deal.
You don't have to go through another round of affordability checks and a valuation.
An independent mortgage advisor can help you find the best deal. Find one unbiased.nl.
Mark Harrisfrom mortgage broker SPF Private Clients, says: “Starting the refinancing process early gives you peace of mind.
“This means that your rate is guaranteed, even if rates increase.
“If rates drop further, you can choose a cheaper option.”
If you want to end your current deal early, you usually pay an exit fee.
It may be worth paying this money for long-term savings, but do your amounts first.
A mortgage advisor can calculate for you whether you will save money by concluding a deal earlier.
FIX OR TRACKER?
A FIX is probably the best option if the outlook is still uncertain, as it gives you the security of regular monthly payments. Five-year fixes are currently cheaper than two-year fixes.
But Harris says: 'Many of our customers opt for a shorter term of two years in the hope that interest rates will have fallen when they remortgage.
“Some choose trackers with a term of two years, without early repayment costs.
“They will fix it if rates fall further, but this is a riskier option for borrowers.”
Tracker mortgages are linked to the base rate, so interest rates can rise or fall in line with interest rates.
“You pay more for the flexibility of a tracker, with average rates of 6.14 percent.
WHAT TO DO IF YOU ARE ON YOUR SUPPLIER'S SVR
IF you switch to a standard variable rate (SVR) at the end of the deal, you could get stung; the average is a whopping 8.18 percent.
Harris says: “If you have an SVR because you need flexibility, a penalty-free basic interest rate tracker is an option.
“They are still cheaper than the average SVR.”
GET THE BEST PRICE AS A FIRST BUYER
THE larger your deposit, the cheaper your mortgage deal.
“Every five percent increase in deposit you make can make a difference in your rate,” says Hollingworth.
Extending the term of your mortgage will reduce your payments, but you will pay more interest in the long run.
And take mortgage costs into account.
You can also add this to the mortgage, but this can be more expensive in the longer term.
- Always compare the total cost of the mortgage, including any costs. Comparison tables above taken from MoneyfactsCompare.nl.
'I HAVE TO TIGHTEN BELT IF A HIGHER RATE BECOMES'
FREELANCE marketing consultant Lucy Woods, 34, pictured above, takes out a new two-year mortgage with Santander at an interest rate of 4.69 per cent.
She says: “A five-year solution felt too long if interest rates could be lowered.”
From March she will pay £686 a month for a £131,000 repayment mortgage with a term of 31 years.
This compares with £460 per month for her current four-year, 2.04 per cent contract with Halifax.
“I started looking at interest rates in October last year and they were higher then, so the increase wasn't as bad as expected.
“I'll just have to tighten my belt and do more things like batch cooking.”
She bought her two-bedroom home in Thurston, Suffolk, in March 2021 for £220,000.
It is now worth £250,000.
ROB'S £22,000 benefits account is in error
A pensioner has won his months-long battle with the Department for Work and Pensions after being told he owed £22,000 – thanks to Sun Money.
Last year we told how Robert Vincent, 75, from Porthcawl, Mid Glamorgan, was ordered to pay back the money due to 'errors' in his pension loan application.
He was blamed for providing the incorrect retirement income when he filed six years ago.
When Sun Money became involved we asked the DWP to investigate the matter and it quickly emerged that it was their fault.
The DWP has apologized and refunded the £976 it had already paid back.
Mr Vincent said: “It is great news that the DWP has finally admitted it made mistakes.”
Mr Vincent is just one of thousands of claimants who have been asked to repay money wrongly awarded by the DWP.
Government figures show that around £330 million in pension credits have been overpaid in the period to October 2022.
If you are asked to refund advantages and you think it is wrong, contact the DWP.
2 million faces energy ax due to debts
MORE than two million people will have their gas and electricity has shut this off winter because they cannot afford to top up their prepayment meter, it is feared.
Citizens Advice has raised concerns after the energy regulator, Ofgem, late EDF, Octopus Energy and Scottish Current to return to forcibly applying the pay-as-you-go devices to collect debts.
The practice was temporarily banned for older households and households with young children due to concerns about the way customers were treated.
Citizens Advice said it expects this to be its busiest winter helping people who can't afford to top up.
The charity found that 1.7 million people lost their connection at least once a month last year.
If you have a prepayment meter and are having trouble making payments, contact your supplier and ask for a payment plan.
Several energy companies also have subsidies for customers who have difficulty paying.
British Gas is offering up to £1,500 each, while Scottish Power is handing out £750.
Contact your provider for more information about the offer, eligibility criteria and how to apply.