TIME TO REMORTGAGE? HOW TO GET THE BEST DEAL – EVEN IF IT’S MORE EXPENSIVE
Around 1.9 million British households will come to the end of fixed-rate mortgage deals this year, according to UK Finance – which will be welcome news for some and rather worrying for others.
According to information obtained from the Financial Conduct Authority by Compare The Market, 971,105 five-year fixed-rate mortgages were taken out in 2021 at historically low rates averaging around 0.91pc. The majority of these households will be looking to remortgage again this year. With the cheapest fixes now between 3.5pc and 4pc, their repayments may increase accordingly.
At the other end of the spectrum are those borrowers coming off expensive two-year fixed rates – who will likely be glad to see the back of them. These households took out mortgages in 2024 when average two-year rates were at around 5.7pc. These borrowers have already experienced a spike in repayments and are likely to see their monthly repayments reduce significantly when they remortgage this year.
Whether your mortgage repayments are predicted to go up or get cheaper, Telegraph Money explains how to make the best financial decision with your next mortgage move.
- My mortgage costs are going up
- My mortgage costs are going down
My cheap five-year fix is ending
How much will my repayments go up?
This will depend on a number of factors, including your current mortgage rate and term, whether it’s interest-only or repayment, the size of a loan, the proportion you’re borrowing (the loan-to-value ratio) and your financial circumstances. But to get a sense of what to expect, John Everest of Everest Mortgage Services Ltd has put together an example using some average figures.
Let’s say Joe bought a property for £270,000 with a £20,000 deposit, borrowing £250,000 on a 35-year mortgage term. He has a repayment mortgage and is about to finish a cheap 1.29pc five-year fixed deal, where he’d been paying £740 a month.
From 2026, when he comes to remortgage, his outstanding balance would have been reduced to £226,000, but with a new deal at 3.79pc his monthly repayments will still increase to £1,050.
“The new rate is likely to be more expensive ... however, fortunately, many of the fixed rates available today are the cheapest we have seen for about three years,” said Adrian Anderson, of broker Anderson Harris.
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What should I do before my deal ends?
While the numbers can look terrifying, there are ways you can improve your financial position before your current deal comes to an end.
- Six months beforehand – speak to a mortgage broker: Starting the process early will help you understand how much your payments are likely to increase, giving you time to prepare. “Around six months before your deal ends, you can usually secure a new rate with an adviser that offers a ‘price match promise’, meaning if rates improve before completion, the deal can be re-priced and resubmitted at the lower rate,” said Sarah Tucker, chief executive and founder of The Mortgage Mum.
- Consider overpayments: Most fixed-rate deals come with the option to overpay 10pc of the loan value without incurring an early repayment charge. By taking advantage of the lower rate of your existing mortgage to overpay, you can not only cut the term of your overall mortgage, but if it gets you in a lower borrowing threshold, you could secure a cheaper deal.
- Build up your savings: If you are on a very low mortgage rate, for example, 0.9pc, it might make more fiscal sense to build up your savings if you’ll receive a higher rate of interest on them than you will save by overpaying your mortgage. “Putting that money into a high-interest savings account or Isa helps households adjust to the higher monthly cost in advance, and it also creates a buffer that can be used for overpayments once the new mortgage starts, reducing the loan balance and long-term interest,” said Ms Tucker.
How to choose the best deal
With hundreds of deals to choose from – none of which are likely to be as “good” as the one you’ve just been on – it can be hard to tell which is the most suitable option. Assuming you’ve already enlisted the help of a mortgage broker, as suggested in the step above, here are some other pointers to secure the best deal for you.
- Ask your lender about product transfer deals: Many lenders like to retain existing customers, so explore what options they are offering early and compare them to competitors to secure the best possible deal you can.
- Don’t be wowed by the headline rate: Lenders might advertise low interest rates, but these can mask the effect of high arrangement or product fees, which can be four-figure sums. Also check to see whether free valuations are included. Depending on the size of your mortgage, it might work out better value to select a higher interest rate with no product fees.
- Reassess your borrowing: Since you last took out a mortgage, at the same time as you’ve been paying down your debt, your home will almost certainly have increased in value, thereby increasing the equity you hold. The more equity you have in your home, the more favourable mortgage products you have access to – so make sure your lender makes an accurate assessment of how much your home is worth, particularly if you’ve made improvements with extensions or building work in the last five years.
- Avoid the SVR: If you haven’t switched to a new mortgage deal by the time your fixed rate comes to an end, you’ll need to act quickly to avoid automatically being placed on your current lender’s Standard Variable Rate (SVR). This is likely to be one of the most expensive rates out there, usually around 7pc, and means your payments will jump up significantly.
“If a fixed rate has already ended, the priority is acting quickly rather than fixating on a specific product,” said Mr Tucker. “Borrowers can switch to a temporary tracker rate with no Early Repayment Charge with their current lender for breathing space while a full market review is carried out.” This is preferential to the SVR, which, even over just a few weeks, could end up costing thousands of pounds.
Five-year fix, two-year fix or tracker – how to choose
The decision of what type of mortgage you opt for next is a personal one, but there are certain factors you should consider. Around 85pc of mortgages in the UK are currently fixed policies – most commonly two- or five-year fixes, but a tracker mortgage might be a better option for some. The rates for these deals are tied to movements in the Bank Rate, so can increase or decrease at any time.
Choose a two-year fix if:
- You want more flexibility; perhaps you’re planning to move after two years, or intend to repay a chunk of your mortgage with a matured investment or a pension lump sum, and want to avoid any early repayment charges.
- You want a cheaper rate than five-year fixes offer.
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Choose a five-year fix if:
- You want longer-term certainty and are happy to be tied into a mortgage for five years.
- It’s unlikely that your financial situation will change significantly over the term of the deal.
- You aren’t planning on moving house.
Choose a tracker if:
- You want to be able to leave your mortgage at any time without paying a large early repayment charge.
- You are happy with a ‘riskier’ loan that could increase if the Bank Rate rises and can afford repayments if the rates were to increase.
- You expect the Bank Rate to go down and want to take advantage of this.
I’m coming off an expensive two-year fix
How much will my repayments go down?
Using more figures from Mr Everest, let’s take another borrower, Tom, who purchased a property for £270,000 on a 35-year term, with a repayment mortgage of £250,000. His two-year deal charged 6pc interest and cost him £1,426 a month. When he comes to remortgage, he secures a new deal at 4pc, which means his repayments reduce by £309 a month to £1,117.
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How to make the most of lower mortgage payments
In terms of getting a new mortgage, much of the advice above will also apply to this group, but being in the fortunate position of having some money freed up by a cheaper deal means you have additional options of how to make the most of it.
While it might be tempting to use the extra money for life’s little luxuries, allowing lifestyle creep is not a great use of your cash – but these options could put you on stronger financial footing in the future:
- Use extra cash for overpayments: If you are accustomed to higher monthly payments, you could continue repaying them after you’ve switched to a cheaper deal. “If your lifestyle was adjusted around the more expensive mortgage rates, now could be a good time to try and reduce the mortgage on a monthly basis with regular overpayments,” said Mr Anderson. “[This] can reduce the amount of mortgage interest you pay on the term of your mortgage and can shorten the mortgage term.”
- Opt for other investments: You might want to use the money for another purpose, in which case you could invest this extra cash rather than overpay. “For some households, especially those without existing investments, directing surplus money into a long-term strategy such as a stocks and shares Isa can be equally effective,” said Ms Tucker.
- Create a slush fund or emergency savings: You could also put the extra monthly cash towards building up savings. This is particularly important if you’ve exhausted them to stay on top of the higher mortgage repayments over the last two years.
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2026-02-12T14:00:46Z