Cutting your mortgage costs as fixed-rate deals start to go up - do you need to remortgage?

Cutting your mortgage costs is one way to trim your debt over the long term

Cutting your mortgage costs is one way to trim your debt over the long term
Cutting your mortgage costs is one way to trim your debt over the long term
(Image credit: Getty images)

Cutting your mortgage costs is a great move if possible but homeowners need to act swiftly as the number of fixed rate and discounted variable deals have fallen since the Bank of England's interest rate increase in December.

With concerns about cost of living going up, energy bills soaring  and upcoming tax rises in April 2022, now could be the best time to review your mortgage costs by looking at remortgage options.

Of the 830,000 searches for a new mortgage deal in December 2021, 42% were looking to remortgage and 17% were first-time buyers, according to Twenty7Tec, which provides software to banks.

If you’re looking to lock in a better deal, then now is the time to act. At the start of November 2021 there were 35 fixed rate mortgages deals at less than 1%. By January 10, 2022, there were just eight left from two providers lending in Northern Ireland only, according to analyst Moneyfacts

Your mortgage is likely to be your biggest financial commitment so trimming your largest debt as and when you can will make for the biggest savings. We explain how.

Cutting your mortgage costs as fixed-rate deals start to go up - what are the cheapest deals? 

The lowest initial fixed rate deal (as of 10 January 2022) is Barclays’ two-year fix at 1.11%. It comes with a £999 fee and is available to homeowners with 60% equity.

The lowest fee-free deal is 1.29% two-year fix from Furness Building Society for homebuyers with a 75% equity. However, this deal is only available in restricted postcodes. 

Reliance Bank offers 1.45% two-year fix. There’s no fee and it’s available to home-owners throughout the UK with 75% equity.

Borrowers are now watching the clock to lock in such cheap deals. A homeowner with a £250,000 25-year loan who is slow to remortgage could end up paying £458 more a month on Barclays' 3.59% standard variable rate (SVR, the rate you default to if your deal runs out) than on the 1.11% deal.

A couple with a £1m 25-year repayment mortgage would pay about £5,005 a month on Barclays' SVR, but £3,819 a month at 1.11%, according to L&C's mortgage calculator.

“The super low fixed rates below 1% have virtually disappeared, however there are still some competitive rates available.  Interest rates are only likely to go one way, and that is up. So anyone coming to the end of a deal or are on a lender’s standard variable rate, now is a good time to review the rate that you are on,” says Katie Brain, banking expert at Defaqto.

Robert Payne, director of broker Langley House Mortgages, says he has had an extremely busy start to the year as the threat of rate rises drives both purchases and remortgages.  “Those looking to remortgage are reaching out to us far earlier than usual to lock into a new loan up to six months ahead of their current deal expiring, which is a very sensible thing to do." 

What to consider if you have a tracker mortgage 

Around 850,000 households are on tracker mortgages which follow the base rate, according to bank trade body UK Finance. Lenders give a month’s notice before they adjust repayments.

This means that when the base rate rose on December 16 , borrowers on tracker deals saw their mortgage payment increased the following month.

For example, if your mortgage was 2% plus the base rate (previously 0.1%), your tracker mortgage would have been 2.1%. When the base rate rose 0.15%, your tracker mortgage became 2.25% from January 2022. 

Reasons to remortgage 

Your current deal is about to end
When your mortgage deal ends, your lender automatically puts you on their standard variable rate (SVR). This will be higher than your old interest rate and higher than the best buys available. To avoid higher monthly payments, be ready to remortgage to a cheaper rate. 

You want a better rate
Research shows there are better deals on the market. You might have to pay an early repayment charge which can be huge. This doesn't mean you shouldn't consider it as the longer-term savings can be significant (especially if you have a large amount of mortgage debt). You need to do the maths.

Your property’s value has gone up
If your property’s value has risen rapidly since you took out your mortgage, you may find you're in a lower loan-to-value band, and therefore eligible for much lower rates. Again, you need to do the maths but it's worth considering.

You’re worried about rates going up because you have a tracker mortgage
Currently the Bank of England base rate is only 0.1% – very low - but if it rises and you have a tracker mortgage this will affect your mortgage payments.

You want to overpay but your lender won’t let you
Perhaps you want to pay extra due to a windfall or pay rise but your current lender won't let you or will only let you make a small overpayment. A remortgage will allow you to reduce the loan size and maybe get a cheaper deal. Factor in any early repayment charges or exit fees you face, and do the maths to ensure you would be saving with a new, lower mortgage.

The cost of living squeeze
As the threat of rising inflation and tax rises squeeze household budgets ever more, trimming your mortgage costs could help your overall finances. Eleanor Williams, finance expert at Moneyfacts, says the squeeze on household finances this year is reason enough to scrutinize mortgage costs. “With the potential for the Bank of England to apply further increases to the base rate in the coming months, there is no guarantee that the cost of borrowing on mortgages will not continue to rise overall. That’s enough motivation for borrowers to act sooner than perhaps they might have planned to in considering securing a new mortgage deal.” 

Reasons to not remortgage 

Your mortgage debt is less than £50,000
Once your mortgage debt falls below £50,000, it may not be worth switching lenders simply because you are less likely to make a saving if the fees are high - the smaller your mortgage, the bigger the impact of any fees you need to pay. Some lenders won't actually take on mortgages below £25,000. 

Your early repayment charge is large
If the maths reveals it would cost too much to detach from your current deal, then consider alternative plans.  Ask your lender to let you switch to another of its deals (ie, do a product transfer) by paying a reduced early repayment charge. Or bide your time and get ready to move as soon as you can.

Your financial circumstances have changed
Affordability checks apply to remortgaging too. If you (or your partner) have become self-employed, or been furloughed and are working reduced hours, then be aware lenders may not be prepared to offer you a mortgage deal because you no longer fit their criteria. Check the best deal your existing lender will give you  (ie, do a product transfer) or bide your time and get ready to move as soon as you can.

You have very little equity
If you need to borrow more than 90% of the value of your property, then you'll struggle to find a better rate.

How do I remortgage? 

Start looking around three to six months before your mortgage deal ends as delays due to the pandemic has meant it now takes longer.

The first step would be to dig out any paperwork relating to the current mortgage deal, check the end dates of your current deal, or alternatively contact the existing lender to find out the details.

Do your research and use a comparison site that includes direct only deals (not just for mortgage brokers). Make a note of the cheapest possible deal for you in your personal circumstances.

Early repayment charges can be significant - often 2-5% of your outstanding loan - so factor this amount into the term of your prospective mortgage deal. 

Mortgage fees are also significant. If you are looking at a two-year fixed deal with a £2,500 fee that’s essentially an extra £104 a month (£2,500 divided by 24 months) on top of your new monthly payment - is this a good deal?

Consider using a mortgage broker. They understand what lenders want so they can best match you to a mortgage you will be accepted for. Some brokers do charge a fee so again it’s a cost you have to be willing to pay. And be aware that brokers do not have to tell you about every deal on the market. It’s why it’s important to do your own research via comparison sites that include direct deals only.

Katie Brain says: “If there are no early repayment charges, then it could be a good time to review with a professional mortgage adviser to either re-mortgage to a different lender, or stay with your existing lender depending on what deals are available. However if they are on a fairly competitive rate or have very high repayment charges it may not be the right time to change your mortgage deal, but make sure you diarise when the mortgage deal or charges end to review then.”

Katie Binns
Katie Binns

Katie is staff writer at The Money Edit. She was the former staff writer at The Times and The Sunday Times. Her experience includes writing about personal finance, culture, travel and interviews celebrities.  Her investigative work on financial abuse resulted in a number of mortgage prisoners being set free - and a nomination for the Best Personal Finance Story of the Year in the Headlinemoney awards 2021.