How to find a cheaper mortgage and beat rate rises

The Bank of England has raised the base rate to 0.5 per cent, but mortgage rates are still near record lows.

Despite those cheap rates on offer, many homeowners are still paying more than they need to.

This is typically because they take out a fixed-rate deal and when it ends, they don’t remortgage and end up sitting on their lender’s default standard variable rate. Most of these SVRs will now rise thanks to the base rate being lifted.

Standard variable rates can be as high as 12 per cent or as low as 2.5 per cent, but are usually just below 5 per cent. 

That compares to mortgage variable rates as low as 0.87 per cent and fixed rates starting from 1.32 per cent on offer to new borrowers now.

While there might be a good reason not to lock into a new mortgage deal – you’re planning to move house or you’re on a super cheap lifetime tracker rate from 10 years ago – if you can remortgage and there’s no reason not to, do. 

To help you navigate the maze that remortgaging can sometimes involve, we’ve pulled together the answers to everything you need to know.

1. What’s your mortgage and can you leave?

Check if you’re on a fixed rate or variable rate and how far through the deal you are. 

Most people know what kind of mortgage they are on, ie a two-year fix, but they often don’t know the exact rate, how long their deal period still has to go, or how long they have left to pay off their mortgage – is it 17 years, or are we down to 15? 

You need to know you current rate, when any deal period ends if you are still in it, and how long your remaining mortgage term is, ie how many years until it is cleared completely.

If you are out of an initial deal period and have moved on to a standard variable rate, then you should be free to leave.

If you are still in a deal period, you will most likely have to pay to get out. 

If you took out a five-year fix three years ago, you’ll have two years left before you need to remortgage, but your term will have come down from a typical 25 years to 22 years.

Most mortgage deals have early repayment charges, but these reduce the closer you get to the end of the deal, so work out how long you have left on your deal and what the ERC is. 

For example, if you have less than a year left, usually lenders charge you 1 per cent of the mortgage balance to repay early. On £200,000 this would be £2,000. Sometimes it’s worth paying an ERC if the savings from a new mortgage rate will outweigh the cost.   

And if you haven’t remortgaged in a while and are on your lender’s default standard variable rate, it’s likely there won’t be any early repayment charges.

2. What kind of mortgage do you want?

Once you’ve decided you want to remortgage, think about what deal you want. These typically fall into the following categories.

Fixed rate or tracker?

Fixed rates tend to be more expensive than variable rates as they commit to fix your monthly payments for the duration of the deal.

Variable tracker rates track another interest rate, most commonly the bank of England base rate, and so monthly payments can change within the duration of the deal.

There are other variable rate deals that follow lender’s standard variable rates, these can be a gamble as the bank or building society can raise this independently of the Bank of England’s moves. 

Repayment or interest-only?

Capital repayment mortgages allow you to pay the interest on the loan plus a bit of capital every month. This means you’re paying off your mortgage and at the end of the term, there will be nothing left to pay. 

Interest-only loans have lower monthly repayments because you only repay the interest. At the end of the term you have to find a way to repay the full mortgage, typically using savings, investments or by selling the house.

You need to know which one of these that you are on and whether you want your new mortgage to be the same. 

Be warned, getting interest-only deals is considerably harder than in the days before the financial crisis, although it is still possible.

Shifting from interest-only to repayment will raise your costs, but will mean you are clearing your mortgage. 

Do you want the same length mortgage or to extend the term?

A mortgage term is the length of its entire life. If you already have a mortgage and took it out over 25 years, say, five years ago, you have 20 years left on the term.

When you remortgage you can choose to keep the term at 20 years or lengthen or shorten the term. 

On a  repayment mortgage, a longer term will mean each monthly payment is lower, as you are spreading paying it back over longer. This might make a bigger loan more affordable in the near future, but because the loan takes longer to repay, you will pay more interest overall.

A shorter term means higher monthly payments but less interest payable overall as you’ll pay off the loan sooner. If you are nearing retirement this can be a good thing. 

Some lenders have maximum age limits which may restrict how long a term you can get. Typically you need to be 75 or younger by the end of the mortgage term. 

Some lenders, particularly building societies, go above this. A broker will be able to help you identify one which is right for you.

Timing is everything: If you are remortgaging, you need to think about how long you have left and how long you want your mortgage to run for

3. How long should you fix your mortgage for?

The most popular mortgage deals are two-year fixed rates as these tend to be the cheapest rates. 

However five-year fixed rates have become popular as people want to lock in to today’s cheap rates for longer.

It’s possible to get both fixed and variable rates over two, three, four, five, seven and 10 year periods. 

Before you decide, consider future plans including when you might need to move house or whether your income may change. Early repayment charges are typical if you need to get out early. 

The best fixed rate mortgages are portable, meaning you can take them with you if you move home. But your lender will want to assess the new property and may not agree it. 

Remember that people typically underestimate how long they will stay in a property for.

4. Is it worth paying a big fee?

The cheapest rates usually come with the biggest fees – for a reason. The bank will make its money back one way or another so make sure you understand how much you’re really paying including the fee. 

However, the bigger the mortgage loan amount, the less effect the fee has. 

Also, if you opt for a longer-term deal, over the full term of the mortgage you’ll pay fewer fees. 

Remember, if you roll the fee into the loan, you’re also paying interest on the fee. 

One other thing, remortgaging triggers several other fees in addition to the mortgage fee. Lenders will also charge a valuation fee and there will be legal fees to pay. 

Some remortgage deals include ‘free legals’ and free valuation while others offer cashback to help pay for these costs. Some don’t offer any freebies. 

> Use our true cost mortgage calculator to compare deals including the fee  

5. What are the best mortgage deals out there?

Finding the best deal for you isn’t the same as finding the cheapest rate. The type of mortgage and over how long you take it are just as important to consider. 

If you decide you want to organise your loan directly with a lender you can do the research online, comparing the deals you might qualify for. 

Nearly all lenders list their best rates on their websites and include a mortgage calculator that will give you an indication of what you can borrow. 

This is time consuming though as there are more than 100 mortgage lenders in the UK. A quicker way is to use This is Money’s mortgage calculator, which lets you check the best rates you could apply for.

It’s also possible to use price comparison websites to compare the best buy rates. Remember though, these sites do not necessarily list all the rates and deals available in the UK and they don’t take into account whether you’ll be accepted by the lender. 

A way to take some of the hassle out of remortgaging is to use a good broker. 

This is Money has partnered with London & Country, an independent and free mortgage broker that will run comparisons for you and provide individual advice on the best deal for you and your circumstances. You can search the best deals based on a few basic numbers here and get in touch with them here.  

There are also thousands of independent mortgage brokers around the country to choose from, offering online, face-to-face or telephone advice. Some charge a fee and others are free. 

Before you choose one, read a range of reviews on an independent site such as Trust Pilot, Unbiased or VouchedFor.

6. What happens next in a remortgage? 

You’ll need to go through what’s known as a ‘fact find’ with your broker or lender so they can assess how much you can afford to borrow. 

This includes providing all of your personal details and the details of your existing mortgage. 

You’ll need to let them know about your wider financial circumstances, for example if you have any credit cards, what their outstanding balances are and any other loans or fixed expenses such as school fees or childcare.

They will also ask you about your savings, how much you have and what assets, for example, investments, property or cash in Isas. 

Depending on your age, your pension pot, whether it is final salary or defined contribution and how much you’ve saved and expect to save will also be relevant. 

If you’re retired and have an annuity, they will need these details too. 

Details of your income and employment are also needed. For salaried employees, lenders typically want to see up to three months’ PAYE payslips. 

For those who are contractors or are self-employed, contract details, accounts signed off by a qualified accountant, business bank statements and/or SA302 forms going back three years are usually required. 

That said, there are a few lenders that specialise in mortgages for the self-employed with some requiring this paperwork for one or two years only.

Nearly all lenders require between three and six months of bank statements showing your income and spending patterns. Some accept these online, others by fax (yes, they still exist) and others need you to post paper copies.  

Your lender or broker will also need to see your passport or full UK driving licence, proof of address such as a utility bill, full information and paperwork documenting any benefits you receive

Once you’ve been approved in principle the lender will instruct a valuer to carry out a mortgage valuation. They typically don’t need to inspect the property for remortgaging, though they can request this.

They will also instruct their solicitors to do the necessary conveyancing including verifying the title (checking that the property exists and is what you say it is), land searches such as whether there is risk of subsidence or flooding, and whether there is any liability that comes with the property, such as ground rent, church levies or a public right of way on land.

If the conveyancing throws up any issues, you may find that the lender comes back requesting further paperwork or guarantees. 

After what should take a few days but usually takes up to three months and a lot of paperwork, you should be done. 

If you’re switching lenders, the new lender will transfer the mortgage to repay the old lender and your new payments will commence.