Updated June 2023
Today, we’re here to chat with you about a topic that has been causing a bit of a commotion recently – coming to the end of a fixed-rate mortgage. We understand this might feel like a daunting time in 2023, especially when you see headlines about rising interest rates in the news every week. But, we are here to break down your options in easy-to-understand terms.
Back to Basics
Let’s start with the basics: what happens when your fixed-rate mortgage term ends? Simply put, you’ll be automatically shifted onto your lender’s Standard Variable Rate (SVR). This is usually higher than your fixed-rate and can fluctuate at your lender’s discretion – hence the name.
Sounds a bit scary, right? Especially with the rising interest rates making news headlines. But remember – just because your mortgage term is ending it doesn’t mean you’re stuck with an SVR!
Remortgaging: The Key to Control
Remortgaging is just a fancy term for switching your mortgage, either by moving to a different deal with your current lender or jumping ship to a new one. With rates on the rise, be prepared to start your search already aware that you’re probably not going to find a deal as cheap as your previous fixed-rate mortgage.
This is because the lower rates that were available up until around a year ago, or just before the mini-budget fiasco in September 2022, simply cannot be offered by the lenders anymore. With the Bank of England steadily increasing the base rate from 0.1% in 2020 to the current 4.5% (June 2023 – in order to try and control the UK’s inflation problem), the interest rates which lenders are able to offer have changed significantly over the last three years.
Now, it might sound a tad overwhelming, but there are mortgage brokers out there who are well-versed in navigating the market to find the best deals. And of course, our mortgage advisors are always on hand to help, if you’d like to have a chat.
For more tips on how to get the best interest rate on your mortgage, click here.
A Wise Time to Act
Unfortunately, none of us have a crystal ball to know what will happen in the next six to 18 months regarding interest rates. There are so many conflicting reports, some stating rates may decrease before the end of 2023, others stating the base rate may rise to 5.75% by 2024.
The critical point to bear in mind is that preparation is key. Don’t wait until your fixed-rate ends; start looking around three to six months before your term expires, and lock in once you find the best product available to you. Because rates are changing by the day at the moment, we strongly recommend acting as quick as you can, as the same deal may no longer be available even a day or two later if you delay.
Because there are no certainties, the best advice we can offer is for you to choose the most viable option out there for you. By that, we mean choosing the product which you are able to afford to make the monthly mortgage payment every month, as your home will be at risk of repossession if you do not keep up repayments. If this means following your lender’s SVR in the hope that rates decrease eventually, that is entirely your decision and it may pay off in the long-run if rates do start to come down again by the end of 2023. However, you should certainly run some calculations, just to check that if the SVR goes up to say 6% or higher, that you could afford to keep making these payments month after month.
With the rates currently rising, you may not want to the take the risk of following the SVR offered by your lender, or the risk of holding out for a lower fixed-rate that isn’t available right now. If you want to know where you stand every month for the next couple of years, then don’t delay in finding and locking into the best or most affordable fixed-rate deal available now. Although, the fixed-rate deals on offer today will be more expensive than the fixed-rate you’ve been used to, the positive is that you can budget your money knowing exactly what this payment will be each and every month.
Extend Your Terms
Another option if you’re coming to the end of your fixed-rate mortgage, is to consider remortgaging with a longer term. Although increasing the length of your mortgage term doesn’t sound ideal, because you’d be borrowing the money over a longer term, it would bring your monthly payments down, making payments more affordable with the current higher rates. When the time comes to remortgage again in perhaps two to five years, you could then aim to decrease the term length if the rates have become more affordable to you.
The Beauty of Overpayments
Another point to ponder during this period is overpayments. If you’ve been able to overpay on your current mortgage, you’ll have built some nice equity! This can be a boon when remortgaging, as it might get you a lower Loan-To-Value (LTV) ratio and potentially access to better deals.
Tying the Loose Ends
Lastly, it’s crucial to evaluate your changing needs. Perhaps your family has grown since you took out your last mortgage, or maybe your income has changed. Reflect on your lifestyle and future plans, and make sure your new mortgage reflects that. You may even wish to sell your property to downsize and ease your monthly mortgage costs, but we’d only advise this if it’s the right time for you to do so, and we’ve exhausted every avenue for you in terms of mortgage deals available to you and their affordability.
In addition, if you choose to use a mortgage broker, make sure they are really working for you. At HLC Mortgages, we will keep in touch regularly with your estate agent, solicitor and lender to ensure they have everything to enable your mortgage to complete.
The ending of your fixed-rate mortgage might seem like a daunting prospect, particularly amidst the chatter of rising interest rates. However, with a little bit of research and some proactive decisions, it doesn’t have to be so scary.
Acting now offers a chance to secure a deal you can afford. And with rates currently on the rise, acting sooner rather than later is advisable.
If you’d like further advice or help with finding the best deal on the market for you, contact one of our friendly mortgage advisors now.