How to avoid the interest rate rise and find a cheaper mortgage

MILLIONS of homeowners woke-up today to higher mortgage payments, following the rise in interest rates.

Borrowers could see themselves forking-out an extra £246 a year – but there are steps you can take NOW if you want a cheaper deal.

What type of mortgage am I on?

This might sound like a silly question but it’s important to know, as what type you’re on will mean if payments go up or not.

There are two main types – fixed and variable.

If you’re on a fixed, then the rate you pay is set for the length of time of the deal – and won’t be immediately impacted by the rate rise.

If you’re on a variable, then the rate you pay can move both up and down, typically in-line with base-rate.

And if you’re on a type of variable mortgage called a tracker, then your payments will definitely rise and fall in relation to base rate – so you will see your payments go up.

Analysis for The Sun Online found if the major lenders pass on the entire 0.25 per cent increase to its variable customers, homeowners could see their bills rise by as much as £264 a year.

So it could be well worth you switching to a fixed rate deal instead.

What type of mortgage is cheaper?

Typically fixed-deals are cheaper than variable ones.

According to MoneySavingExpert the average rate of a standard variable rate (SVR) deal is 4.5 per cent compared to a best-buy two-year fixed of just 1.09 per cent.

That’s a difference of more than £3,000 a year on a typical £150,000 mortgage over 25 years.

Mortgage expert at London and Country Mortgages, David Hollingworth, warns: “Paying a lender’s standard variable rate is highly unlikely to be the best deal for most homeowners.

“The hike in base rate should be the thing to jolt borrowers into reviewing their mortgage deal if they haven’t already.”

I’m already a homeowner – should I remortgage?

That depends on your current deal but given the rate rise – and the expectation that there maybe more to come – now is an ideal time to see if you can get a better mortgage.

MSE’s Martin Lewis says yesterday’s news could be the beginning of the end for really cheap mortgages so homeowners should act now if they want to take advantage – and potentially save thousands over a year.

“The bigger picture is this is likely to be the beginning of the end of uber-cheap mortgages,” he says.

“New fixes are already a tad costlier as the market’s anticipated rate rises. Yet for now, deals are still incredibly cheap.

“There’s still a window of opportunity for the next couple of weeks to get current cheap deals. Everyone should check to see if they’re overpaying.”

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In some cases, remortgaging won’t be worth it – if your outstanding debt is small for example, or you’ve had credit or financial problems since you took out your current mortgage – but you should check.

And make sure you know how much you’ll pay to move to the new deal.

Mr Hollingworth says: “Rate is only one aspect of any mortgage deal and it’s important to look for the best overall value rather than simply opt for the lowest interest rate.

“Some of the lowest rates on offer can carry big arrangement fees, sometimes up to a couple of thousand pounds.”

And don’t be tempted to stick with your mortgage provider once your fixed-term deal comes to an end.

If you don’t remortgage, you’ll be rolled-over to your lender’s more expensive SVR rate.

I’ve found a cheaper deal – what do I need to be aware of?

Knowing exactly what current deal you’re on is really important so you can work out if a new mortgage will save you money.

If you were on a fixed and have been rolled-over to your lender’s SVR deal you should be able to sign-up for a new lender with no penalties.

But if you’re still in the deal’s introductory period you could face a hefty early exit charge, potentially making it not worth remortgaging at all.

Early repayment charges will reduce the closer you are to the end of the deal, so you need to know how long you’ve got left to make a decision.

And property expert Kate Faulkner says seeking help from a mortgage broker, which can cost between £300 and £400, can help you work out what will be best.

“Make sure you secure expert advice that suits your personal circumstances and future plans,” she says.

“Speak to your current lender, or bank if you don’t have a mortgage yet to see what deals they can offer, but also an independent mortgage broker who can search the market for all mortgages available.”

What best deals are on the market?

There are some cheap deals for both first-time buyers and those looking to remortgage.

Based on a £150,000 mortgage over 25 years, Yorkshire Building Society’s two-year fix at 1.89 per cent for first-time buyers will work out at £628 a month. Its fee is £995.

If you’re willing to tie yourself in for a longer length of time, the best five-year fix comes from Metro Bank.

With a rate of 2.54 per cent, borrowers will pay back £676 a month. Its fee is £999.

Both are available with just a 10 per cent deposit.

If you’re looking to remortgage, Skipton’s two-year, 1.20 per cent deal, will cost £579 a month, along with a £579 fee.

And if you want to know what you’re paying for the next decade, Barclay’s 10-year fix deal will see borrowers pay £687 a month, with a £620 fee.

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