With the almost continuous commentary on when the Bank of England will raise interest rates, there is a very real sense that for the first time in years, the halcyon days of borrowing money at rock bottom rates may be coming to an end. With this speculation my client’s attention is naturally turning towards their single biggest monthly outgoing: their mortgage. All of a sudden those on variable rates are starting to feel vulnerable… “Is my payment going to go up? If so, by how much? And the $64,000 question, when will this happen?”
How do I know if it’s the right time to remortgage?
Before going any further, I must make clear that any opinions which I express in this post when it comes to interest rates are just that – they should not be taken as mortgage advice or advice on when interest rates will change. That said, the mood has shifted from speculation on “if” rates will rise, to “when” they will go up. The governor of the Bank of England has been open in his assessment of the current economic situation, making numerous speeches on what he expects the interest rate landscape to look like going forward. This raises the question of “remortgaging – when is the right time?”
It would not seem unreasonable to me to expect that once normalisation begins interest rate increases would proceed slowly and rise to a level in the medium term that is perhaps about half as high as historic averages. “In my view, the decision as to when to start such a process of adjustment will likely come into sharper relief around the turn of this year,” – Mark Carney, July 2015.
Such a public and unambiguous appraisal has left many of my clients thinking when they should look again at their mortgage, should they be looking to fix and if so for how long? The short answer to “re-mortgaging – when is the right time” is that it depends. There isn’t a simple one size fits all solution or product, nor is there a single piece of universal advice when it comes to “remortgaging – when is the right time” which I give to my clients.
Every situation is different…
The pertinent reason being that everyone’s circumstances and requirements for a mortgage product is different. Yes, interest rates and projections inevitably do and should play into your thinking when you consider remortgaging. However it would be foolish to base your decision entirely on this. A lot can change in a short space of time in the global economy… we need only look at recent events on the Greek and Chinese markets to see this. The point is external economic factors could render what the governor said to be obsolete very quickly. A far more rounded approach is to consider potential rate rises alongside your own personal circumstances, both in terms of what they were when you took out your original mortgage and what they are likely to be over the years ahead.
A good broker’s advice in this area is invaluable… he or she will be able to find the product that suits you individually. Perhaps you plan to move in 2 years’ time? Or maybe you’re planning to start a family with all the financial implications that come with it. Has your income changed since you last looked at your mortgage and is it likely to change again in the future? These are just a few of the questions a good adviser will ask and the answers along with your feelings on interest rate rises will shape your tailored advice. This is the approach I always take with my clients and they nearly all find it beneficial because it gets them thinking about what features they would value in a mortgage.
For example, I recently helped a client who was worried about rate rises and wanted to protect his mortgage payment against these. Given the loan was in excess of £1,000,000 a small increase in the base rate translated to a significant difference in his monthly payment so his anxiety was understandable. Now the “off the peg” advice here is simple: worried client who wants long term security equals a 5 year fixed rate from a high street lender. However, this client earned significant annual bonuses and wanted the ability to pay the mortgage down quickly by using his extra income, and after questioning he told me he thought he would be able clear the loan in 3 years. A far more appropriate solution was to take this to a private bank who could offer a 3 year fixed rate, but with no early repayment charges. Now, the rate was a little higher when compared with the standard high street fixed rate. However, the client really valued the ability to make large lump sum repayments and was happy to follow my advice, even though the actual rate was slightly higher.
So if you are worried about interest rates and are thinking of remortgaging my advice is to broaden your thinking beyond “if and when” rates will go up. It should not be ignored but rather it should form part of a much wider analysis of your circumstances and plans going forward. When it comes to re-mortgaging – when is the right time there is no definitive answer. However, what cannot be forgotten is that now is certainly the time to start considering it.