FINANCIAL WELLBEING HUB
Your guide to Interest Rate Changes
FINANCIAL WELLBEING
Interest rates and your mortgage:
what you need to know
You’ve probably noticed that mortgage interest rates are much higher than they have been for the last ten years or so. In fact, the average two-year fixed rate is now just under 6%, according to Moneyfacts – which means homebuyers and people remortgaging are likely to pay a fair bit more than they would have a few years ago.
But what does that mean for you? It all depends on what type of mortgage deal you have, and how long until it expires. While you should always seek independent financial advice before you make any decisions, we’ve put together the information below to help you find out more.
Confused about which type of mortgage rate you have? You can find out more about each below.
broker partners
HOW TO APPLY
We don’t offer our products direct to customers. If you’re interested in taking out a Homeowner Loan, speak to one of our trusted broker partners. They can talk you through your options and give you their recommendation – whether that’s one of our loans, or somebody else’s. Whatever is best for you.
It may sound obvious, but your mortgage interest rate is what decides how much you pay to borrow the funds to buy your home. The higher the interest rate, the higher your monthly mortgage repayments.
So what does that mean in reality? Let’s say you have a £150,000 mortgage. You’re on a two-year fix at 2%, and your term is 25 years. At the end of the two years you go on to the SVR, which is 4.5%. Your repayments would go up from £636 to £833 a month.
That’s almost £200 a month more.
The table below shows how much an increase in mortgage rates can add to your monthly repayments. Again, this is based on a £150,000 mortgage over 25 years.
Your options at the end of your deal
If you can afford to pay more every month, and want to wait and see if interest rates go down, you can do nothing and move on to your lender’s standard variable rate. If you don’t want to do that, you’ve got two options:
This is when you stay with your existing lender but switch your deal. The majority of homeowners take this option.
This is when you change lender and switch deal.
- Competitive interest rates – some lenders offer better rates to existing borrowers
- Fewer fees – often just an arrangement fee. Most product transfers don’t have legal, valuation or exit fees
- Less paperwork – as long as you’re not borrowing more or changing the length of your mortgage
- No affordability check – as long as you’re borrowing the same amount for the same length of time. So it won’t affect your credit score
- Easy to apply – you can usually do it either online or over the phone
- Quick decisions – you can sometimes be accepted in days or even hours.
- Limits choice – transferring without looking at other lenders and their deals can be restrictive
- Not the full picture – your current lender can’t give you impartial advice or let you know about lower rates elsewhere
- You could miss out – there may be a better deal that could help you reduce your monthly repayments
- Flexibility – you may be able to find a deal that allows overpayments or mortgage holidays
- Lower LTV rate – if your home’s gone up in value, you could use it to get a lower loan-to-value (LTV) rate. This is the percentage of your property’s value covered by your mortgage, the best rates are offered to those with LTVs under 75%
- Save money – remortgaging to a cheaper deal will reduce your monthly payments compared to staying on the standard variable rate.
- More credit checks – you’ll go through the whole process of applying for a new mortgage. You’ll likely be credit checked, which could affect your credit score.
- You may be refused – if your circumstances have changed (you have a new baby, more debts or have become self-employed), it could affect your application
- More fees – the set-up costs of remortgaging can sometimes be more than the savings you’d make on a lower rate
- Not for everyone – if you don’t have much equity in your home, are close to retirement age or the value of your house has gone down, you may find it difficult to remortgage.
Ultimately, with a remortgage you can move onto a new deal with a new lender – this can mean you get a better rate. However, there may be fees to pay and it can sometimes take longer. A product transfer often involves fewer, or no, fees – and may appear simpler at first glance. But while this might be the case with many straightforward mortgages, less straightforward ones can be a different story. Your individual circumstances and life plans will always be taken into account.
Don’t rush into a decision. Whatever you choose, check how much the fees are, what your new repayments will be and for how long.
Then start to explore your options. Ask your current lender about the best product transfer rates they’re offering. Take a look at the deals you could get from other lenders using a remortgage comparison tool. Finally, make sure you contact a mortgage broker. They have access to exclusive products, and can give you advice on what’s right for you – and which lenders are more likely to accept your application
ARTICLES & BLOGS
If you’d like to dig deeper, read our articles and blogs for the best Homeowner Loan content and insight.
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