I’m a mortgage expert – six things to do NOW if your fixed rate is about to end
HUNDREDS of thousands of mortgage borrowers could face payment difficulties in the next year - but there is help available.
The Financial Conduct Authority (FCA) estimates that 365,000 more households become financially stretched by the end of June 2024.
Mortgage borrowers are defined as being financially stretched if more than 30% of their gross household income goes towards mortgage payments, according to the regulator.
Among this group, those rolling off a fixed-rate deal could end up paying an additional £340 a month on average.
If you have a fixed rate, you could see higher rates when you come to the end of the current term.
Around 2.2million borrowers are due to come to the end of a deal that they fixed when the base rate was at a historic low of 0.1%.
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And if you're nearing the end of a fixed deal soon, you may be wondering what you should do now.
What's going on with mortgage rates?
The Bank of England hiked its base rate for the tenth time in a row to 4% in February in a bid to tackle inflation.
The base rate is used by lenders to price the rates offered to customers on savings and loans including mortgages.
Usually, a rise in the base rate is passed on to consumers but following the rise, some rates fell below 4% for the first time in five months.
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This is because the BoE lowered its forecasts on how interest rates will peak from 6% to 4.5%.
But Nicholas Mendes, from mortgage advisors John Charcoal, said only a handful of lenders have kept their fixed rates below 4%.
He added that there is a "growing expectation" that we will see rates fluctuate over the next few months.
He told The Sun: "For those that are trying to find a mortgage, or in the middle of an application or approaching the end of their fixed rate, keeping an eye on the market, and acting quickly will be more vital than ever."
If you are coming to the end of a fixed rate, you can secure a new fixed rate six months in advance of when your existing deal is due to expire.
Nicholas added: "For most people, their mortgage payment is their highest monthly outgoing.
"It makes sense then, to learn the ways in which you can manage your mortgage to save you interest and money overall – in addition to securing the best rate for your circumstances."
Nicholas shared six things you need to do now if your fixed rate is about to end.
Use a broker
Using a mortgage broker could help you to get the best deal on the market, according to Nicholas.
Mortgage brokers help arrange a loan between you and the lender.
Nicholas said: "During a mortgage application, most lenders will allow a client to switch to a new rate before the mortgage application completes without any issues.
"This is one key benefit of a broker - not only will they ensure you get the best deal on the market that fits your needs and circumstances, but they will also keep in touch with the client and inform them of any significant changes to ensure you do not lose out while balancing the lenders timescales."
Look out for fees
Whether you’re purchasing a new property or looking at a remortgage, you’re likely to encounter product fees or lender fees in your search.
Paying a product fee can be advantageous, Nicholas said, as it can allow you to access a better rate.
It will result in lower monthly payments and an overall saving over the term of the mortgage.
But knowing whether it’s better for your situation to pay the product fee upfront or add it to the mortgage is definitely a good idea.
Nicholas said: "If you’re remortgaging, you can pay the product fee upfront and avoid paying interest, alternatively by adding the product fee to the loan you’ll benefit from getting a lower rate compared with not paying a fee, but you’ll pay interest on the fee amount.
"These options are worth considering before applying for your mortgage to ensure you choose what’s right for you."
Consider overpayments
Most lenders allow customers on fixed rates to make overpayments of up to 10% of the outstanding mortgage balance in a year.
It’s important to not pay more than the 10% because this can trigger hefty early repayment charges.
Many homeowners are currently on fixed rates lower than the rates on the market today.
Therefore, when it becomes time to remortgage, you’re likely going to be moving onto a higher rate regardless of the loan-to-value of your property, Nicholas said.
"Utilising your allowance while on a low rate can be a more cost-effective way of significantly reducing your mortgage balance than making overpayments when the percentage is higher, because the rate reflects the cost of borrowing per pound."
Evaluate your mortgage term
Nicholas said increasing the term of your mortgage can lower your monthly payments and reduce your monthly outgoings.
But he said doing this means there will be an increase in the overall cost of borrowing as you'll be paying interest on a more slowly reducing mortgage amount for a longer period.
He added: "Lower monthly repayments might be useful as a short-term cost-cutting solution, but you want to ensure that you review the term each time your fixed rate comes to an end.
"Although you can extend the term during a purchase or a remortgage, this option is often particularly favoured by first-time buyers as they typically have forty years before retirement – which means they have more time to increase their earning potential and change to a different deal later.
"It may not be possible for those nearing the end of their working career to extend their term."
Be energy efficient
Energy performance ratings are based on the energy efficiency of your home.
The EPC (Energy Performance Certificate) lasts for ten years.
When a house goes on the market or is let, it needs to have a valid EPC rating,
As most homeowners will have work done on the property during the period in which they own it, many will find that the EPC has improved by the time it comes to sell.
If you’ve had work done on your property, it’s worth finding out its latest EPC rating, Nicholas said.
This is because a better EPC rating could also help you access better rates on a remortgage as lenders are keen to lend to homes that are an EPC C or above.
Therefore, it’s worth getting a new EPC before you start the remortgage process.
Remortgaging vs product transfer
In the past, clients would have faced different rates with the same lender when it came to the same product.
But lenders now tend to offer both new clients taking out a new mortgage and existing clients applying for a product transfer, access to the same rate.
Nicholas said that while this may give the impression that you're getting a good deal, it still pays to look at your options.
He said: "Taking the time to look at options on the market could pay dividends especially over the term of the loan.
"By reviewing each time, you come to a milestone or end of a fixed rate, you can assess your options and find the most cost-effective solution.
"This could be staying with the same lender, moving to a cheaper rate with a new lender, reducing the mortgage term or something else.";
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Meanwhile, we list six everyday things that can stop you from getting a mortgage - including lottery tickets.
Plus, we look at all the ways struggling households can get help with their mortgage bills.
Do you have a money problem that needs sorting? Get in touch by emailing [email protected]