If you take a historic view, mortgage deals aren't just cheap right now, they're miles below the cheapest. But according to MSE founder Martin Lewis that may be about to change...
"This is a clarion call to everyone with a mortgage. Check NOW if you're on the cheapest deal you can get. It's possible we are at the bottom of the mortgage rate curve. When UK base rates were cut from 0.5% to 0.25% in August, the thought was they may drop again. But the economy's stabilised so the Bank of England's now indicating that's less likely.
"Plus, Donald Trump's victory has seen a jump in the City's long-term interest rates which the price of fixed-rate mortgages are based on. So there is a chance we'll see fixed costs start to rise. While this is far from certain, rates are so cheap, even if they did drop, my guess is the gain would be limited - yet if they go the other way, the cost could be huge. So if you want safety, checking now is sensible."
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." And 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."
Here's our guide to getting the best deal for you...
1. What you need to know about your current deal. To see if you can remortgage (switch mortgage to save), you need the following...
a) What's the rate? And monthly repayment & debt outstanding.
b) What type is it? Fix, tracker, discount or standard variable rate (SVR)?
c) When's the intro deal over? Eg, when does the 2yr fix end?
d) How long is the mortgage term? Eg, 25yrs, and when it must be fully repaid by.
e) Will I be penalised? Are there early-repayment or exit penalties?
Crucially find your CURRENT loan-to-value (LTV) - the proportion of your property's value you're borrowing: £80k on a £100k property is 80% LTV. For each 5% lower your LTV, usually until 60%, the cheaper the deal. So if your home's increased in value since you got your mortgage, you may gain. See LTV help for full info.
2. Speedily dig out your top deal with a mortgage comparison. Rates may be at rock-bottom, but many factors affect what's YOUR best.
Take HSBC's 0.99% 2yr fix which is the cheapest ever fixed rate. Yet it's not for all as you need a top credit score, there's a £1,499 fee, and you can't borrow more than 65% of your home's value. Nevertheless it highlights just how competitive the market is.
So bash all your info into our comparison tool to get a benchmark for your top deal, then read on.
|Typical current top deals on A £150k mortgage
Links take you to our Mortgage Best-Buy tool
|Deal||Rate + Fee||Cost/yr in deal term (incl application fee) (1)|
|Typical SVR rate||4%||£9,500|
|Fix 2yr at 65% LTV||0.99% + £1,499||£7,600|
|Fix 2yr at 90% LTV||1.94% + £1,649||£8,240|
|Fix 5yr at 65% LTV||1.9% + £999||£7,810|
|Fix 5yr at 90% LTV||2.54% + £999||£8,320|
|Tracker 2yr at 60% LTV||1.24% + £995||£7,390|
|Tracker 2yr at 90% LTV||2.29% + £999||£8,270|
|(1) Fee combined with loan, assumes 25yr term.|
3. BIG savings are possible if you're on your lender's standard variable rate (SVR). This is the rate most fixes and trackers revert to when the intro deal ends. They're often pricey.
To show you the sheer scale of savings, here are some major lenders' current SVRs (some have cheaper versions for older customers), which now average about 4% (see SVR Help for more):
Barclays 3.74% | Coventry BS 4.49% | HSBC 3.69%
Lloyds & Halifax 3.74% | Nationwide 3.74%
RBS & NatWest 3.75% | Santander 4.49% | Virgin Money 4.54%
Yorkshire BS 4.74%
Now compare those with rates above and apply this: Every 1 %-point mortgage-cut saves roughly £80/mth per £100,000 of mortgage.
Eg, someone moving a £150,000 mortgage from 4% SVR to a 2yr fix at 0.99% will save £4k+ over 2yrs even after fees.
4. Get our FREE 60-page Remortgaging Booklet. Your mortgage is likely your biggest expenditure, and just because you've done it once, doesn't mean it's the same this time around. So be sure you know what you're doing. Our guide takes you through it step-by-step. Jennifer tweeted: "Read your guide and agreed a new mortgage deal, saving about £200/mth. Delighted."
- Remortgage 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.
5. Remember you've fees to pay - use our free tool to factor 'em in... If you've a small mortgage (especially sub-£100k), the bigger the impact of valuation, legal and other fees. It's vital to factor these in over the period of your deal to work out the true cost for comparison. Our MSE Total Cost Assessment in our best-buys comparison factors in fee and rate for your cheapest deal.
6. Join our FREE Credit Club to interrogate what lenders really think of you. Your credit history is a huge part of whether you'll be accepted for any type of credit, incl mortgages. We launched the revolutionary, totally free MSE Credit Club in September to try to demystify the acceptance process and uncover the true picture of your overall financial appeal for all manner of products.
It includes a free Experian Credit Score. But lenders don't stop there - and we wanted to mimic what they do more closely, so we don't stop there either. It also includes your unique Affordability Score, Credit Hit Rate and how to boost your score.
7. Don't think just because you can afford monthly payments, you'll pass affordability tests. For the past two and a half years, 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 - but now they want evidence of income, big bills, expenses, even eating out. So being frugal in advance helps.
While we're fans of 'affordability checks' - they make sure you don't push your finances beyond the limit - they're not logical for many remortgages, and ridiculously, people are being told they can't afford a CHEAPER deal. We'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."
These rules stem from the EU Mortgage Credit Directive and regulator the Financial Conduct Authority's interpretation of it. While Brexit means this may eventually change, many are caught NOW.
We're campaigning and have called for an urgent review of the UK's interpretation of the rules as part of next week's Autumn Statement so people are no longer told they can't afford a cheaper deal. We've already had some success - see Mortgage Prisoner Result. Please email us if you've tried to remortgage and ended up trapped.
8. Should I go for a fix or tracker/discount? With a fix, the amount you repay is, er, fixed - it provides certainty against possible rate rises. Variable deals move with UK interest rates or sometimes 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.
9. With rates so low and the threat of hikes, should you ditch your fix? Use our Ditch your fix? tool to check if you can save by switching from a pricey fix. It won't work for all due to exorbitant early-repayment fees but why not check, just in case?
Eg, if you've a 3.49% fix with 23mths left on a £100,000 mortgage, you could save if you can switch to anything better than a 1.51% fix with a £1,000 arrangement fee, even taking into account £2,800ish extra switching fees (incl early exit charge, legal & valuation fees).
10. Calcs galore to test your options. Now you know typical rates, use our mortgage calcs to compare 'em and see what you could save:
Ultimate Mortgage Calculator
Eight tools to home in on the right answer for you, incl...
11. Savings stashed away? Use 'em to bag a better mortgage. The lower your LTV threshold, the better the deal you can get. They drop in 5% chunks from 95% to 60%, so use some savings to get you into a lower threshold and you can save big. For example...
If you've a £150,000 home, and want a £137,000 remortgage, that's 91% LTV, and the top 5yr fix is 3.98%. Yet use £2,000 of savings to reduce the borrowing, & you'd be at 90% LTV - where the top 5yr fix is 2.54%, saving c. £1,130/year in payments.
See Should I overpay my mortgage? for more and use the Mortgage Overpayment Calc to see how much regular overpayments can help.
12. Get a leg up from a mortgage broker. 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.
13. Yet brokers can 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.
This article first appeared in the MoneySavingExpert.com weekly email on 16 November.