When you remortgage, you take out a new loan with either your existing lender or another lender. According to the Council of Mortgage Lenders (CML), there were 34,700 loans for remortgage in December 2016, worth a total £5.8bn – that’s an increase of 13% in volume and 14% in value – while Paragon reported they now account for 39% of all mortgages handled by advisers.
Remortgaging could help you free up money for something you really want, help you pay your mortgage off quicker by moving to a lower rate, or help you better manage your monthly household outgoings. TSB found that homeowners could save an average of £96 a month by remortgaging to a lower fixed rate deal.
Yesterday, one month later than most experts had predicted, the Bank of England announced a historic change in interest rates, the first change since 2009 – and rather than the upward rise that had been widely predicted for the past few years, it fell from 0.5% to 0.25%.
So what does this mean in practical terms?
Mortgages – For those on a tracker mortgage, as long as your lender passes on the cut to its own base mortgage rate (or if it is linked directly to the BoE base rate), your rate (and monthly payment) should go down. In all, there are about 1.5 million trackers in the UK.
However, some banks and building societies have a ‘tracker floor’, which means there is a limit to how low the percentage can go above the Bank of England base rate. In this case, your rate (and mortgage payment) would be unlikely to change. If you have a fixed rate mortgage, you wouldn’t be affected if the rates went down during your fixed period, but when the time comes to re-mortgage – or if you’re a new homebuyer – , the options open to you could potentially be more favourable, with some experts suggesting long-term fixes even going below 2%.
For pension savers who are using an annuity, a rate cut could make annuity rates fall by putting pressure on the long-term. This could have a potential negative effect on employee pension schemes too.
Needing currency for holidays – While interest rate cuts can oftenmean a weakening of the pound, it may well be the case that the currency markets will have been factoring in a cut for some time already – hence there may be little change if it does eventually happen. Interest rate cuts can be done sometimes to provide an economic stimulus – to encourage people to spend rather than to save – so perhaps this could help improve consumer confidence and boost the pound.
Many homeowners, particularly those who’ve joined the market in the past seven years, will have never been faced with an interest rate rise, and tighter borrowing conditions in the future could make it harder to cope with a rise.
How your credit score could help – Having a higher credit score could mean you get better deals or lower interest rates on credit, loans and mortgages. The Experian Credit Score is a guide to help you understand your Experian Credit Report, and how the way you’ve managed the credit you’ve had in the past might affect applications you’re making now.
It can also help you to monitor your progress as you get your finances in order before you apply. Getting your credit score up could open up the potential chance to get better rates.
(original post 14 July 2016, updated 5 August 2016)
Many homeowners may find that once that their deal comes to an end, their interest rate and mortgage payments may well go up. This could be a good time to check out whether you can re-mortgage and get a lower rate elsewhere.
In this case you are generally going to be taking out a mortgage which is the same size as the one you already had. Your monthly payments may be higher or lower than you currently pay, depending on the mortgage you go for. Alternatively, you may just want the stability of a fixed rate, if you’ve been on a variable rate that you think may fluctuate.
It can take a few months to process a mortgage application, so it’s best not to wait until your current deal ends before you start looking around. Watch our new #AskExperian video to find out what some of the options are.