What to do if your fixed rate mortgage ends this year

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Typical mortgage payments have risen by more than £800 a year in the past five months alone, according to analysis by broker L&C Mortgages.

Looking at the mortgages offered by the UK’s ten largest lenders, he found that the interest rate on the average two-year fixed rate deal offered to someone with a 40% deposit had risen 1% since October.

This means someone who takes out a £150,000 repayment mortgage over a 25-year term would now be paying £70 more every month than they would have in October. This equates to an additional £840 each year.

The increase in the two-year average rate would mean that a £150,000 mortgage will now cost more than £800 more a year for those eligible for the cheapest deals.

Interest rates on five-year fixed mortgages also rose, rising 0.92% on average since October.

Those with 40% deposits or equity are generally offered the cheapest mortgage rates, so borrowers with less than that are likely to see interest rates and monthly payments increase even more.

Mortgage rates have risen in recent months, fueled in part by the Bank of England’s decision to raise the base rate, first in December from 0.1% to 0.25% and then last month from 0. .25% to 0.5%.

The Monetary Policy Committee is due to meet again next week and may decide to raise the base rate further.

In the summer of 2021, buyers with 40% down payments or owners with 40% equity accumulated in their property could get mortgage interest rates below 0.9%.

Now the cheapest two-year fixed rate offer, offered by Nationwide, is 1.74% with a product fee of £999.

Under the deal, someone who buys a property worth £300,000 and takes out a £180,000 repayment mortgage covering 60% of the value over a term of 25 years, will pay £744 a month , including the costs with the mortgage.

That’s a far cry from Nationwide’s three-year and five-year patches launched in July last year at a cost of 0.94% and 0.99%.

The same borrower taking the 0.94% rate would pay £677 per month including the £999 product fee with the mortgage, a difference of £67 per month or £804 per year.

David Hollingworth, Managing Partner at L&C Mortgages, said: “Mortgage rates have moved rapidly as lenders are forced to adjust to the impact of market expectations for higher rates on their funding costs.

“The breakneck pace of change is something that might surprise borrowers, especially when the cost of living and other expenses such as energy are already rising as well.

Average Mortgage Rates of the Top Ten Lenders
October 2021 March 2022
Average Standard Variable Rate (SVR) 3.82% 4.14%
Average correction over 2 years 0.89% 1.89%
Monthly payment £557.87 £627.78
Annual savings on SVR £2,629 £2,107
Average correction over 5 years 1.05% 1.97%
Monthly payment £568.71 £633.59
Annual saving £2,499 £2,038
Source: L&C

Hollingworth said that while interest rates were rising, they were still low compared to a decade or more ago.

He advised borrowers who are able to settle their mortgage contract now to do so, in order to protect themselves against further rate hikes.

Fixed rates are still at historically attractive levels, so borrowers should review their current deal to ensure they are on the best deal and protect their position, especially in the face of soaring spending and further increases. base rate potential.”

The average standard variable rate also rose, climbing more than 0.3% to 4.14% since October.

Homeowners have tried to get ahead of the curve before, and many have rushed to remortgage at the end of 2021 in a bid to avoid rising interest rates.

A total of £27.3billion in mortgages were agreed in the last three months of 2021, according to the Bank of England, the highest in three years.

However, this may not be the right course of action for everyone.

What to do if you need to remortgage this year

With mortgage products lasting only a few days in some cases, borrowers fear they will miss out on the best fixed deals if rates continue to climb.

It’s essential to know exactly when your current contract ends, because leaving a fixed rate mortgage too soon can lead to prepayment charges of up to 5% of the total amount.

It may not be as simple as being exactly two or five years into the mortgage.

Some lenders, such as Nationwide, will fix for a number of years from the start date of the mortgage – also known as the completion date.

However, many fixed rate offers are fixed on a certain date, so you may find more or less time than you initially thought to fulfill your mortgage.

You can find this date on your mortgage offer letter or by contacting your lender. A mortgage broker should also be able to advise you on this.

Many borrowers don’t realize they can apply up to six months before the end of their current contract to get a new one and lock in the rate.

Offers from lenders are usually valid for three to six months.

Chris Sykes, Associate Director and Mortgage Consultant at Private Finance, said: “If you know your mortgage is due for renewal this year, definitely check when exactly it ends and contact a mortgage broker to review your options six. or seven months in advance of that date.

“You can typically apply for a mortgage up to six months before the end of your current contract if you’re switching to a new lender, or three to four months in advance if you’re switching products with your current lender.”

There are also a few considerations to take into account if you’re looking to get a rate well in advance.

The cheapest two-year <a class=fixed rate offer on the market is currently offered by Nationwide, charging 1.74% with a product fee of £999.” class=”blkBorder img-share” style=”max-width:100%” />

The cheapest two-year fixed rate offer on the market is currently offered by Nationwide, charging 1.74% with a product fee of £999.

“Not all lenders will operate the same way, so it’s really important to understand that the mortgage offer will stick around for the right length of time,” Hollingworth said.

“Some lenders will make their offers valid for six months from issuance, while others may have shorter validity periods or impose turnaround times specific to their products.

“For example, Halifax is applying a completion deadline of September 30, 2022 to outstanding mortgage deals – over six months.”

Another factor to watch out for when locking an offer before an existing offer ends is the product fee, which may be non-refundable.

You can choose to add these fees to the mortgage amount, and therefore pay them off with the loan over time, or choose to pay them upfront in one lump sum.

“It’s important to understand if there are any up-front fees and if they may be non-refundable,” adds Hollingworth.

“For example, if an appraisal fee were payable, it would be unlikely to be refundable and so if the borrower later chooses not to proceed, they could incur a fee.”

What if you were to remortgage next year

If you’re currently on a fixed rate mortgage and the deal doesn’t end for a year, you might be considering switching anyway.

However, the problem here is that you might be hit with prepayment charges.

Most fixed rate transactions come with a prepayment charge, which often ranges from 1-5% of the outstanding mortgage amount.

In some cases, the amount decreases as the mortgage transaction nears completion.

For example, while in the first year of a five-year mortgage contract, you may be slammed with a 5% charge, however, if you are in your final year, you may only be subject to a 5% charge. 1%.

The average standard <a class=floating rate climbed more than 0.3% to 4.14% as the Bank of England prepares to meet again next week” class=”blkBorder img-share” style=”max-width:100%” />

The average standard floating rate climbed more than 0.3% to 4.14% as the Bank of England prepares to meet again next week

Whether or not it’s financially prudent to absorb a prepayment charge to take advantage of current rates depends on your situation.

“We’ve charged some customers a prepayment charge to secure the competitive 10-year fixed rates we’re seeing now,” Sykes said.

“So it might be worth considering, but it would very much depend on each individual’s situation.”

‘How much would the prepayment charges be, their thoughts on medium and long-term interest rates, how long they expect to be in the property, etc.

“The last thing you want is for someone to pay a 3% prepayment charge in times of panic and then a year later rates haven’t gone up much.”

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