With lenders cutting interest rates to record low levels, and a potential further base rate cut by the Bank of England, many people may be wondering, is now the time to remortgage?
There are certainly some competitive deals available in the mortgage market right now; in April this year, mortgage interest rates fell to their lowest level on record, stimulated by a potential decrease in the national interest base rate.
How does the base rate impact mortgage lending?
The level of interest that homeowners are offered on their mortgages is determined by the base rate. When it looked like the Bank of England would put interest rates up earlier this year, many mortgage lenders scrapped their cheapest deals.
However, following the EU referendum result, an interest rate cut is now more likely than a rise, and this has led to a surge in new, cheaper mortgage deals flooding the market.
Mortgage holders paid just 2.41% interest on their home loan on average in April – a significant dip on the 2.65% average interest rate for mortgages during the same month last year, and light years from the 4.55% average rate back in 2004.
What stimulates a cut in mortgage interest rates?
When one mortgage lender drops their prices, their rivals will often follow suit, in order to stop the first lender cornering the market. The potential upcoming decrease in the UK base rate is currently encouraging several mortgage lenders to decrease their interest charges, which will generate better prices for homeowners.
In addition, there are further factors beside the Bank of England base rate that are stimulating competitive mortgage deals. For example, a reduction in buy-to-let investment is leading lenders to bring out better deals; the government introduced new tax charges and tightened up lending criteria for buy-to-let investors earlier this year, which has resulted in a decline in the level of borrowing.
Another key factor is consumer caution. As we’ve already mentioned, the recent EU referendum result could impact the national base rate, but the uncertainty generated by the leave result means consumers are being more careful with their spending. As a result, mortgage holders will need to compete more fiercely for homeowners’ business over the coming months.
How can consumers get the best remortgage deals?
Given the current climate, many consumers may be nervous to make new financial commitments. However, now is the time to pick up some good value remortgage offers – provided you do some thorough research to find the best deal.
Getting the best remortgage deal means comparing what products are currently available on the market, and the interest rates each product offers. Ideally, you should choose the lowest interest rate, to limit the amount you need to pay back to your lender.
There are some things to consider beyond the interest rate, however. Firstly, some mortgage products will involve a set-up fee. This is not necessarily a problem if the interest rate is low enough to mean that you end up paying less over the lifetime of your mortgage than a product with no set-up fee but a higher interest rate.
Secondly, some mortgage lenders can issue customers with an exit fee if they decide to switch to a home loan from another provider, so it’s worth speaking to your current mortgage provider first to find out about administration charges, and also to see if they can offer you a better deal as a loyal customer.
When you need to think about your mortgage, contact our borrowing team.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE