Mortgages: switch now to cut your payments

Mortgages: switch now to cut your payments

Homeowners could save £200 a month thanks to competitive rates and higher prices, says lender

Rupert Jones 

The Guardian

Sat 20 Jul 2019 07.00 BST Last modified on Mon 22 Jul 2019 10.58 BST

More than £26bn worth of mortgage deals are due to mature in October, the largest monthly volume of the year, according to new figures released this week.

So if one of those thousands of home loans is yours, you might want to start thinking about looking for a new deal now – particularly as you may be able to make a chunky saving on your monthly payments.

Yorkshire building society – which came up with the figure after analysing market data – says some homeowners whose deals are coming to an end this autumn could save about £200 a month by remortgaging.

That is partly as a result of the current competitive mortgage rates, but also reflects the rise in house prices across much of the UK during the last few years.

Mark Harris at mortgage broker SPF Private Clients says: “Those coming off five-year fixes will find that rates are now considerably cheaper, which should mean you can make a significant saving on your monthly payments.”

He adds: “You may also find that your property has appreciated in value, meaning you qualify for a lower, cheaper, loan-to-value [LTV] band.”

Official Land Registry data shows that the average UK house price in October 2014 was £191,855, and had risen to £229,431 by May this year (the latest month for which figures are available) – an increase of just under 20%.

The Yorkshire says a homeowner who initially borrowed 85% of a £200,000 property in October 2014 at a market-average five-year fixed rate of 4.25% could benefit from a lower LTV of 65% and take advantage of the society’s two-year fix priced at 1.54%, which would save £201 a month in repayments. (However, this deal does involve paying a £1,495 product fee).

If you want to take out a five-year fix, decent rates now available for those remortgaging include:

• 1.77%from Skipton building society, where you can borrow up to 60% of the property’s value, with a £1,995 product fee
• 1.94%from Platform up to 60% LTV with no product fee
• 1.83%from Barclays up to 75% LTV with a £999 product fee

Often with remortgages, the lender will throw in a free valuation and/or free legal services.

Harris says if your mortgage deal is coming to an end, be prepared. “Speak to a mortgage broker a few months beforehand, though if you have a broker, they should be getting in touch with you. If you are looking for extra cash for home improvements or debt consolidation, you should mention this so it can be factored into the sums.”

People need to make sure they consider all the options available. “Your existing lender may be in touch offering another deal for you to slip on to, but make sure you compare this with what else is on the market rather than assuming it is the best option for you,” he adds.

Nick Morrey at broker firm John Charcol says remortgaging to a new lender is likely to be the cheapest option, since the likelihood of your existing lender offering you a product that is also the cheapest of all that are out there is slim. However, the latter route will be quicker than a remortgage, as it will not involve any underwriting or legal work.

“If your current product expires in October, you have approximately three months to tee up a remortgage, should that be the best option. Given that it takes on average up to two weeks to get an offer of advance from the new lender, and four weeks for the legal work to be done, this should be enough time to have everything in place to go the day after your current deal ends, he adds. “Considerable savings can be made compared to the deals available this time in 2014.”

According to Harris, if you have savings earning next to nothing in interest but you want to hang on to them rather than paying down the mortgage, it may be worth considering an offset home loan. These mortgages link your savings, and in some instances your current account, to your home loan.

“This will enable you to reduce the interest you pay while still retaining access to your savings in case of emergency.”

Meanwhile, Kevin Roberts, a director at Legal & General Mortgage Club, says a competitive mortgage market and slower house price growth are helping more first-time buyers make home ownership a reality.

However, he points out that HSBC found that people now expect to be on average 39 years old before they buy their first home. “There are clearly still challenges facing people trying to take their first step, particularly if they don’t have the support of a Bank of Mum and Dad.”