Ready for your remortgage?

In our March blog about Homebuying and Remortgaging, we optimistically suggested “there may be light at the end of the tunnel” and “a glimmer of hope” for those looking to remortgage as it appeared that interest rates might have peaked. Oh, how we were mistaken, although we certainly weren’t alone with our optimism. The truth is, if you’re considering buying your first home or looking to remortgage right now, these are undeniably challenging times!

You’re probably aware that, in a bid to combat inflation, the Bank of England recently raised its base rate by a further 0.5%, bringing it to 5%. This marks the 13th increase in the base rate since its historic low of 0.1% in December 2021 and the base rate is now at its highest level for 15 years. Many experts predict that the base rate could still increase further as inflation isn’t coming down as quickly as hoped.

For the estimated 400,000 people who are expected to exit their fixed-rate mortgage period between now and September, these increases mean they will face a substantial surge in their mortgage repayments. Furthermore, the withdrawal of hundreds of mortgage products by lenders over the past year means there are less mortgage products available from which they can secure a favourable fixed-rate deal.

As things currently stand, the average rate for a two-year fixed-rate mortgage is above 6%. To put this into perspective, in June 2021, it stood at a mere 2.59%. This dramatic increase means that someone coming to the end of a two-year fixed-rate mortgage can expect their monthly repayments to rise by over £200 a month for every £100,000 of mortgage they have. This financial burden comes at a time when household finances are already being squeezed by the cost of living crisis, driven by the inflation that the interest rate rises have been trying to quell.

In addition to higher interest rates, first-time buyers and those looking to move home are also encountering tighter lending conditions, including stricter affordability calculations and reduced loan to value amounts (the percentage of a property’s value that a lender is willing to lend). Unfortunately, this means that securing a mortgage offer has become increasingly difficult, if not impossible, for many people, and mortgage products and offers even being withdrawn as the calculations behind them no longer work.

According to the Institute for Fiscal Studies, a politically independent economics-focused think tank, rising interest rates are likely to result in around 1.4 million mortgage holders experiencing a 20% reduction in their disposable income this year. This means that homeowners will have to allocate more of their money each month to keep a roof over their head. The impact this will have on financial well-being is likely to be high and, with financial stress recognised as one of the top causes for workplace absence, it is likely to impact employers too.

So what can be done? One of the most important things to remember when it comes to mortgages is that knowledge is power. You need to know your options, understand the market, and be aware of any potential pitfalls.

If you are a first-time buyer, you need to make sure you’re in the best possible position to get approved. This means having a steady income, a good credit score, and a healthy deposit. It’s also worth understanding what types of mortgages are available and considering the type of mortgage that’s best for you, be it a fixed rate, a variable rate, or something in between. Also, consider the duration of your mortgage as some mortgage lenders are now offering mortgage terms of up to 40 years to lessen the monthly financial impact.
If you’re already a homeowner and are looking to remortgage, the process is similar, but with a few extra considerations. You need to make sure you’re getting the best deal possible, which may mean switching lenders. You also need to factor in other things such as fees or early repayment charges that may apply. In some cases, opting for a lenders standard variable rate in the short term might be more favourable than fixing at a higher rate.

Mortgages can be complex, with a lot to consider and rather stressful, especially during these challenging times. Fortunately, at Better with Money we are experts in helping employees become more money minded and confident to navigate the financial challenges life sometimes throws at them. That is why we have developed an engaging and accessible webinar called Homebuying and Remortgaging to provide employees with the tools, knowledge, and skills they need to deal with one of life’s biggest financial commitments and to make the process of buying a home or remortgaging far less daunting than it otherwise would be.

If you would like to find out more about Better With Money’s webinars and courses, please get in touch.