The rush to remortgage as interest rates almost treble
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On Friday 4th June, 2021, I reported Halifax’s remortgage rates around the 1% mark. A year on, mortgage interest rates look very different. The average two-year fixed rate is now almost three times more expensive than it was then.
Inflation, and the rising Base Rate to combat it, continue to climb. Here’s what you can do to lock in a rate to see you through these turbulent times.
Rising mortgage interest rates: what’s the story?
The Bank of England’s Monitory Policy Committee met on 4th May and raised the Base Rate again. They voted by a majority of 6-3 to increase Bank Rate by 0.25 percentage points, to 1%.
Those members in the minority weren’t against raising the base rate. Rather, they’d have preferred to increase it by 0.5 percentage points, to 1.25%!
At the subsequent meeting on June 15th, those in the minority got their wish. From June 16th (today) the Base Rate stands at 1.25%.
This has fuelled the expectation that rates will continue to rise throughout the year. It’s worrying, because lenders have already almost trebled their interest rates in a year.
Examples of remortgage rates rising
Remortgage rates for both 2- and 5-year fixed deals from the 10 largest lenders jumped again in June. This is the second significant monthly increase this year.
The average 2-year fixed deal rose by 0.35 percentage points to 2.71%. The 5-year fix rose to 2.78%.
These are substantial rises from the all-time lows of last October. The average respective rates then stood at just 0.89% and 1.05%.
A generation in shock?
Over the past month, mortgage rates have been changing at a staggering frequency. This has made it tricky for borrowers to keep tabs on the market.
Since the global crash 15 years ago, interest rates have been both low and stable. So, such dynamic activity may well shock many people in their 20s, 30s and even early 40s.
But even despite these recent increases, interest rates still remain low by historical standards. They’re also still significantly cheaper than the standard variable rates of most lenders.
These fluctuations translated into action. Clients’ rush to remortgage meant that last month was the busiest month in over 2-years. Homeowners rushed to secure new deals as lenders carte blanch hiked their remortgage rates. It was a mad dash to beat lenders pulling deals, at times them only giving us a few hours’ notice.
The one cost you can protect from the cost of living crisis
The cost of living is spiralling across the board. But mortgages remain one area where households can take positive action.
A new fixed rate will stabilise most homeowners’ single biggest outgoing: their mortgage repayment. Even clients who have an existing lower rate have seen the bigger picture, locking in new fixed terms.
It’s a wise move. Lenders continue to adjust their mortgage affordability calculators against the uncertain backdrop. Their new criteria consider rising interest rates and inflation, and their perceived impact.
This new scenario means it’s critical that contractors apply to the most relevant lender. Focusing on new underwriting criteria is as important as considering the best rates. Not ALL lenders are contractor-friendly, even — or especially — today.
What if I’m already on a fixed rate?
If you’re on a fixed rate deal, higher interest rates won’t affect you until it expires. That said, market predictions suggest that interest rates will carry on rising throughout 2022.
By the end of the year, experts predict the Base Rate could be as high as 2.0%. After today’s announcement, who’d bet against it reaching that figure, unthinkable a year ago?
You need to check how long you have left on your current deal. If you’ve still got 4 years left at 1.39%, it doesn’t make sense to remortgage. But you should still get into the habit of reviewing your existing mortgage.
If you only have 6-8 months left (or fewer) before your current mortgage deal expires, act now. Rates are only going one way in the short- to mid-term: up!
Lenders are still not processing applications at pre-pandemic swiftness. With more homeowners looking to remortgage, turnaround will only get slower.
These longer completion times will surprise contractors who’ve historically enjoyed quick turnarounds. And not in a good way.
Whether you’re buying a home or remortgaging, take positive action! Lock in a lower rate today to protect you and your household budget from the forecast volatility.
More commentary to follow after the ramifications of the June 16th increase bear fruit. Watch this space.
John Yerou is a pioneer of contractor mortgages and owner and founder of Freelancer Financials, Contractor Mortgages®, C&F Mortgages and Self Employed Mortgages, trading styles and brands of the award-winning Mortgage Quest Ltd.
Posted by John Yerou
on June 16th, 2022 13:53pm in