The newspapers are full of stories about the Coventry Building Society's 10-year fixed-rate mortgage deal, which at 2.39% – the cheapest ever – is lower than many five-year deals. Certainly it's a great opportunity to lock in with peace of mind, yet there are some buts that Kim Kardashian would be proud of…
Firstly, to get it you'll need to be borrowing no more than 50% of your home's value, and pay a fee of £999.
Most importantly though, if there's a chance you will need to move house within the next decade you may well have to pay a penalty to leave – which would be up to 5% of the outstanding mortgage value if you were to walk away before 30 September 2018 (so you'd have to pay £5,000 to leave a £100,000 mortgage).
This early repayment charge (ERC) drops to 3% of the outstanding mortgage value if you leave before 30 September 2021 and 1% before 30 September 2026.
Coventry Building Society does offer a 'porting' facility, which in theory means a borrower can take their mortgage with them when they move, however, this is subject to separate approval checks and therefore there is no guarantee that you will be given the green light to move your mortgage without paying a penalty.
So unless you're absolutely sure you're staying put, this may not be one for you.
However, it's emblematic of what's happening on the mortgage market right now. Much of this is due to Brexit (read full info in my Brexit Q&A) but in a nutshell...
- Fixes are getting cheaper. The rate at which fixes are set is based on complex 'long-term City swap rates'. And the markets' Brexit gloom has pushed those down, so fix rates are dropping too – especially longer fixes. As they were already at near all-time lows, this means very cheap fixes.
And certainly if having certainty that you know you can afford your mortgage repayments for the long term is a prime priority for you (as it should be for anyone whose mortgage is a push financially, so you've little room for manoeuvre) then fixing and fixing long now is attractive.
- Variable rates could drop. This depends mostly on the UK base rate. Even though the pound's drop would normally see a call for interest rates to rise, that's balanced against worries about the economy weakening. Bank of England governor Mark Carney has already said he wants to 'ease monetary policy', which either means cutting interest rates (probably to 0.25%) or quantitative easing (printing money). So there's a chance that at the meeting on 14 July we'll see UK rates drop.
The big picture is that mortgages are at historically cheap rates already. If you can slash £1,000s off your cost and get peace of mind that you can afford it (and if you're worried about uncertainty, go for a longer fix) then do it. Yes, there's a chance it could get even cheaper, but if you're bagging something that's easily affordable, that safety and certainty has a value too. Playing the market is never a sure-fire win.And doing this can have a big impact. Craig tweeted: "@MartinSLewis Prompted by your email to remortgage. Saving £2,400 over 2 yrs and no fees." Kperat emailed: "Following your email we did some research, fixed at 1.24% for 2 yrs, reduced term to 13 yrs without paying much more a month. Will be saving about £20,000 even after fees. THANKS."
1. Check your current deal. To see if you can remortgage (switch mortgage deal to save), here's what you need to know about your current deal.
a. The current rate: And monthly repayment & amount outstanding.
b. Type: Is it a fix, tracker, discount or standard variable rate (SVR)?
c. Deal deadline: If it's a short-term deal (eg, 2yr fix), when it ends.
d. Term: How long it is, eg, 25yrs, and when it must be fully repaid by.
e. Penalties: Are there early-repayment or exit penalties?
Crucially find your CURRENT loan-to-value (LTV) – the proportion of the value you're borrowing: £80k on a £100k property is 80% LTV. For each 5% lower your LTV, until 60%, the cheaper the deal. So if your home has increased in value since you got your mortgage, you may gain. See LTV help for full info.
2. FREE 60-page Remortgaging Booklet. A mortgage is most people's biggest expenditure, and just because you've done it once, doesn't mean it's the same this time around. Ensure you know what you're doing. My fully updated guide takes you through it step-by-step. As Katie kindly tweeted: "Fixed rates so low. Excellent #Remortgage Guide from @MoneySavingExp."
- Remortgage Booklet 2016: Download instant PDF | Order printed
- First-Timers' Booklet 2016: Download instant PDF | Order printed
- Remortgage help 5-min video: Sometimes it's easier to watch than read. See the short remortgage help video.
|Typical examples of current top deals on £150k mortgage
|Deal||Rate + Fee||Annual cost during deal term (incl fee) (1)|
|Typical SVR rate||4.3%||£9,800|
|Fix 2yr at 65% LTV||0.99% + £1,499||£7,570|
|Fix 2yr at 90% LTV||2.49% + £0||£8,070|
|Fix 5yr at 65% LTV||2.13% + £1,295||£9,550|
|Fix 5yr at 90% LTV||3.19% + £0||£8,710|
|Tracker 2yr at 60% LTV||1.44% + £999||£7,410|
|Tracker 2yr at 90% LTV||2.74% + £195||£8,390|
|(1) Fee spread across deal period + repayments, assumes 25yr term.|
4. Are you on your lender's standard variable rate (SVR)? If your mortgage fix or discount's ended, you'll be on this so big savings are likely. To highlight the scale, here are some major lenders' current SVRs (some have cheaper versions for older customers), which now average about 4.3% (see SVR Help for more):
Barclays 3.99% | Coventry BS 4.74% | HSBC 3.94%
Lloyds & Halifax 3.99% | Nationwide 3.99%
RBS & NatWest 4% | Santander 4.74% | Virgin Money 4.79%
Yorkshire BS 4.99%
Now compare those with the rates above: Every 1 percentage-point mortgage cut saves roughly £80/mth per £100,000 of mortgage.
5. Don't forget the fees – free tool to factor those in... The smaller your mortgage (especially if sub-£100k), the bigger the impact of valuation, legal and other fees. It's important to factor these into the cost.
To do this, spread fees over the fixed or tracker period (as after, you may shift deal). To help, the MSE Total Cost Assessment in our best buys comparison factors in fee and rate for your cheapest deal.
Ultimate Mortgage Calculator
Eight tools to home in on the right answer for you, incl...
Basic Mortgage Calc | Compare Two Mortgages | Mortgage Overpay Calc | Compare Fixed Mortgages | Ditch Your Current Fix?
7. Should I get a fix or tracker/discount? With a fix, the amount you repay is, er, fixed – it's insurance against possible rate rises. Variable deals move with UK interest rates (sometimes even just at a provider's whim). Generally you'll only pay a touch more to fix.
We can't predict future interest rates, so focus on your finances – the more crucial the surety of knowing the cost, or the more worried you are by uncertainty, the more you should hedge towards fixing, and fixing longer. If a rock-bottom deal's your focus, hedge towards short-term trackers. See Fix vs Variable help.
8. You need a good credit score – is yours good enough? This is now a huge part of whether you'll be accepted, and when possible, you should start preparing months ahead – see my 36 tips to boost your credit score.
9. Just because you can afford it doesn't mean you'll pass affordability tests. For the past 26 months or so, lenders have had to stress-test if your mortgage would be affordable if rates hit 6-7%. You may have escaped this when you first got a mortgage – now they want evidence of income, big bills, expenses, even eating out. So being frugal in advance helps.
While I'm a fan of 'affordability checks', as they ensure people don't push their finances too far, it's not logical for many remortgages. I've had tweets such as: "Circs hadn't changed. No missed payments. No debts bar new cars. £90k equity. Yet no one'd give us a mortgage." So, ridiculously, people are told they can't afford a CHEAPER deal – even some who are overpaying.
I've been campaigning on this. These rules stem from the EU Mortgage Credit Directive. Brexit of course means that may change, but I hope we can do something sooner, as much is about regulator the Financial Conduct Authority's interpretation. I've already had some success though – see Mortgage Prisoner Result.
10. Mortgage brokers can help boost acceptance. You can, and often should, use a broker to help find the right deal. They've info unavailable to consumers, eg, lenders' credit and affordability criteria. A good broker can ease acceptance by matching you to the right deal – and the application process is quicker. See Top Mortgage Brokers.
11. Yet brokers miss some mortgages... A few lenders, incl First Direct and Yorkshire Bank, cut brokers out and sell only directly to the public. So some brokers can and do exclude them – we suggest you use a broker in conjunction with our mortgage comparison, which has all these deals.12. Got savings? They could get you a better mortgage. At every 5% LTV threshold from 95% down to 60%, deals tend to get better, so a little extra can have a big impact on your rate. For example...
Imagine you've a £150,000 home, and want a £137,000 remortgage. That's 91% LTV, and the top 5yr fix is 4.49%. Yet use £2,000 of savings to reduce the borrowing, & you'd then be at 90% LTV – where the top 5yr fix is 2.84%, saving c. £1,600/year in payments.