Mortgage rates have risen significantly over past 12 months, a typical 5 year fixed rate a year ago sat at around 3.25% where the equivalent product today is 5.98%. There are many reasons for these changes, the reaction to the mini budget in October, the continuing war in Ukraine and most importantly the impact of the UK’s high inflationary figures.
Many people have been on very low fixed rate products for a number of years and these increases are having a huge impact to their finances, these increases come at the same time that the cost of energy and food have risen significantly which is increasing the pressure on households further.
A large majority of lenders will allow you to secure a new product for your mortgage 6 months prior to your existing deal expiring, this will allow you to understand what your mortgage payments could look like and allow you to start adjusting your finances accordingly. You can do this with your existing mortgage provider or with another lender if they have a preferential deal and you meet their requirements.
Why is it important to secure a new product as soon as possible?
We believe that it is important to review your mortgage at the earliest opportunity, by doing so you will know exactly what your mortgage payments are going to be worse case. A lot of lenders will allow you to change your product should rates reduce between the time of you securing your new rate and it coming into affect. Once your new product has started, you will not be able to change it without paying a penalty should there be one with your new mortgage product.
Securing a new product early is particularly important at the moment. The cost of fixed rate mortgages are reducing, therefore you could secure a new interest rate now with the potential ability to change this should they fall further before it completes. Given that the financial markets are still unsettled, it might not take a lot before they start rising again. If you haven’t already secured a new product then you would then be looking at having to take one of these new high rate products should they start increasing again.
We used this to great effect earlier this year, a client of ours secured a new rate 6 months prior to the end of their deal while rates were increasing. The initial rate that we secured was a 5 year fixed rate at 5.70%. By managing this closely over the 6 months before the new mortgage needed to take affect, we were able to reduce this to a 5 year fixed rate at 4.06% as interest rates across the market reduced during this period. This meant our customer paying over £29,000 less in interest over the next 5 years!
It is extremely important that you seek advise for your mortgage and you fully understand all of your options available to you, all mortgages are based on your circumstances and failure to maintain your payments could result in your home being repossessed.