However, unless you’ve chosen an unusually long mortgage deal, or intend to pay your mortgage off very quickly, sooner or later the fixed rate deal, or tracker rate you are on will end.
Fixed-rate mortgages tend to last for two or five years, with a few longer term deals available.
Experts say that unless you remember to remortgage when the fixed period ends, you will lose out.
‘When a fixed interest rate expires, it will automatically revert to the lender’s standard variable rate unless other arrangements have been made to remortgage or switch the product,’ explains mortgage broker Gerard Boon.
A standard variable rate, or SVR, is set by the lender themselves. Gerard says that these rates are typically far higher than fixed products. ‘Clients should avoid their product reverting to the lender’s standard variable rate at all costs.’
The good news is that, once you revert to your lender’s SVR, you do not have to pay any fees to leave them, so you are free to switch to a better deal.
The peril of an SVR
Figures from Moneyfacts show just how expensive it is to go onto an SVR. Its latest research illustrates that the average SVR is 4.41 per cent, far above the Bank Of England Base Rate. In comparison, those who are coming off a typical two-year fixed rate will have been paying interest of 2.49 per cent.
Reverting to a lender’s SVR could put up their interest rate by nearly two per cent. Moneyfacts’ Eleanor Williams says that, by switching, with an average two-year rate of 2.57 per cent, instead of the SVR could save someone over £3,500 based on a £150,000 outstanding mortgage. ‘Rolling over onto an SVR could cost borrowers thousands of pounds more in monthly repayments.’
When to get started on choosing a new mortgage deal
To avoid going onto an SVR by accident, it pays to make a note of when your deal is coming to an end. Jonathan Harris, managing director of Forensic Property Finance, says that you should get in touch with your existing lender about six months before your fixed rate ends, to see what deal they can offer you, but should also contact a broker.
‘Your lender may offer the most competitive option but chances are another lender will have a better deal,’ he says. ‘Most mortgage offers are valid for six months, so you can prepare early.’
Mark Harris, chief executive of SPF Private Clients, adds that you should consider your financial situation before choosing a new deal. ‘By speaking to an independent mortgage broker, they will discuss with you your needs, wants, expectations, known future events and look for the most suitable options.’
What about the cost of a new mortgage deal?
Eleanor, at Moneyfacts, says that those remortgaging are often concerned about the associated costs of going on to a new deal, even if it will save them money in the long run. Many lenders still offer incentive packages for remortgages, including free legal work and free valuations, while over a third of remortgages do not come with a fee.
There are also ‘furlough-friendly’ lenders who can assist those whose income has suffered during the Covid pandemic. ‘Seeking independent advice from a broker who is up to date on the ever changing mortgage sector could unveil options, which may save them significant sums,’ Eleanor says.
Other things to consider about your mortgage
The end of a mortgage deal is a good time to check whether there are other aspects to a mortgage you might want.
These might include the ability to overpay each month, flexibility around mortgage holidays, or if you are still on an interest-only mortgage you might wish to switch to a repayment option.
You might even borrow more money if your house has increased in value. These are all good things to discuss when looking for the right product for you.
The remortgaging process
GOING through the remortgaging process is similar to the process of buying a house, except without the stress surrounding broken chains and booking removal vans.
Your new lender will carry out a credit check and value your property, and depending on the deal that the lender offers you may be charged or not for these services.
Provided they are happy with the valuation and with your credit score, you will then simply switch from paying one lender every month to another, hopefully with lower payments.
Remember to make a note of the end date of your new deal, since you will need to remortgage again to avoid an expensive SVR once your current rate comes to an end.
Best buys for remortgaging:
Rate: 1.34 per cent Type: Fixed Period: 02/08/2023 Max LTV: 60 per cent Min fee: –
Furness Building Society
Rate: 1.69 per cent Type: Fixed Period: 2 years Max LTV: 80 per cent Min fee: £1,250
Coventry Building Society
Rate: 1.49 per cent Type: Fixed Period: 30/06/2024 Max LTV: 65 per cent Min fee: £999
Rate: 1.54 per cent Type: Fixed Period: 31/08/2026 Max LTV: 75 per cent Min fee: £999
Yorkshire Building Society
Rate: 2.72 per cent Type: Fixed Period: 31/07/2026 Max LTV: 85 per cent Min fee: £495
Rate: 2.19 per cent Type: Variable terms Period: – Max LTV: 75 per cent Min fee: £490
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