In one of our recent articles we explored whether the cheaper mortgage deals are disappearing and if now is the time to act. Islay Robinson, CEO of Enness Private Clients continues to explain why now is a good time to examine your finances with an adviser, whatever the circumstances.
There’s a good chance if you are reading this, that you are one of the many homeowners hoping to snap up a new mortgage deal just before the Bank of England hikes interest rates. A growing trend has emerged among those currently paying low rates, perhaps on their lenders’ standard variable rate (SVR), to sit…and wait. However, the best remortgage rates do not fall into laps.
The most recent figures from the Council of Mortgage Lenders shows the number of people remortgaging dropped both month-on-month and also year-on-year in August. But timing the market is tricky and if you leave it too late – it could be a very expensive mistake. Predictions about when the Bank of England will hike interest rates have been coming thick and fast since the Governor Mark Carney first went public with his plans. The base rate has been stuck at an historic low of 0.5 per cent for over five years now and there is only one way it can go. We are still none the wiser about the timing of an increase. But we know it’s coming.
Homeowners with mortgages outstanding should be keeping a close eye on interest rates – perhaps more than any others. With the biggest outgoing (beside school fees, perhaps) being a mortgage repayment, the monthly cost is an important matter. At a time when mortgages are almost as cheap as they have ever been, borrowers should be taking action. We know home loans will get more expensive as a base rate rise edges closer – it’s just a question of when.
In such an environment, fixed rate mortgages come into their own. Knowing a mortgage repayment is fixed each month brings worthwhile peace of mind for many. The lowest rates come on two-year deals, but these will force you to remortgage again in 2016 when interest rates may be much higher. Five-year deals are competitive, particularly if there is a large amount of equity stored up.
What many people don’t realise it that by the time interest rates start climbing, mortgage rates will already have risen and the cheapest deals could be withdrawn within days as people rush to secure the best rates. Borrowers could find themselves left out in the cold potentially stuck with paying a much higher rate if they don’t move fast enough. If a mortgage isn’t due to expire until the New Year, mortgage offers can be valid for up to six months so it would be prudent to see what can be done now. There is no doubt that remortgaging can deliver substantial benefits, but only in the right circumstances.
A key question for someone on a low standard variable rate or tracker is going to be how flexible their monthly budget is when rates do rise. Whatever your circumstances, there will be some compelling options to consider. Whether you decide to remortgage now or later – it’s well worth doing the sums. Leaving it until the last minute could backfire and leave you with inflated monthly bills that could have been easily avoided.