If you’re looking for a mortgage, getting yourself a low rate could potentially save you thousands. However, while mortgage rates have been ultra-low for years, things may be about to change.
Interest rates are already heading upwards. Plus, the Bank of England is expected to raise its base rate again next month, putting further pressure on the availability of cheap mortgage deals.
So, if you’re on the lookout for a mortgage deal (or looking to remortgage), should you do it now before it’s too late? Let’s take a look.
Mortgage dilemma: what’s the deal with interest rates right now?
Earlier this month, the Bank of England raised its base rate from 0.25% to 0.5%. This was partly done to help curb the UK’s soaring inflation rate.
Because prices are continuing to rise, many analysts expect the bank to act again when its Monetary Policy Committee meets on 17 March.
Inflation is also a problem in the United States right now, with the latest figures showing that prices are rising across the pond by 7.5%. This is the highest rate seen in over 40 years. According to Goldman Sachs, the US Federal Reserve will have to increase its base rate seven times this year if it is to successfully tackle inflation.
This is important as actions taken by the US Central Bank often have a huge impact on interest rates in the UK. As a result, it’s very likely the Bank of England will hike the base rate on more than one occasion this year – even if it would prefer to prolong the UK’s era of ultra-low rates.
How can higher interest rates impact your mortgage?
Whenever the Bank of England hikes its base rate, lenders have to pay higher costs to borrow money from each other. To compensate for this, lenders increase their mortgage rates accordingly.
If you have a fixed mortgage, you won’t be impacted immediately by any base rate rises. That’s because your rate is locked in for the duration of the fixed term. However, when it comes to remortgaging, you may find that a number of cheap deals have dried up.
However, if you’re on your lender’s Standard Variable rate – or you have a tracker mortgage – then your rate will typically rise in line with any increase to the base rate.
Should you remortgage given the situation with interest rates?
With further base rate rises on the horizon, it’s entirely possible that the number of cheap mortgage deals will shrink. If this happens, remortgaging will also become more expensive. So, should you remortgage now to get ahead of the curve?
Your answer to this question ultimately depends on three big variables. Let’s take a look at each of them.
1. Your credit score
Your credit score will have a massive impact on your ability to get a decent mortgage deal. If yours is less than stellar, then you may wish to sit on remortgaging until you improve it. See our article that outlines how to boost your credit score.
2. Fees that apply to your current deal
While you may find a good mortgage deal, remember that you still have to comply with any terms that apply to your existing deal. For example, many lenders will have an ‘early repayment charge’ that will be triggered if you remortgage. This is often a percentage of your outstanding mortgage, so it could be in the thousands.
Also, be on the lookout for a mortgage exit fee that may apply to your current deal. If such a fee applies to your mortgage, then your hands could be tied until your current deal ends.
3. Your current loan-to-value (LTV)
Your LTV simply refers to how big your mortgage is compared to the value of your home. If your home has increased in value since your current mortgage term started (and it probably has), then your LTV is likely to have dropped. This means that you may qualify for a more competitive mortgage deal.
You may also find your LTV has dropped significantly if you’ve overpaid your mortgage since your term began – especially if you’ve regularly done this up to the maximum rate permitted by your lender. This, again, may help you qualify for the most competitive deals when you remortgage.
What else should you know about remortgaging?
If you are looking to remortgage, then take a look at our list of top-rated mortgage deals.
If you spot a competitive deal, do take into account that it may be possible to lock in a rate three months or so in advance. For example, if your current mortgage term expires in June, you could start to explore mortgage deals in March.
For more tips on remortgaging, see The Motley Fool’s complete guide to mortgages.
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About the author
Karl is a writer specialising in investing and personal finance content. He regularly contributes articles on savings, bank accounts, mortgages, and loans. He was previously a Personal Finance Writer for MoneySavingExpert.
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