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What to do if your fixed rate mortgage ends this year

Typical mortgage payments have risen by more than £800 a year in the past five months alone, according to analysis by broker L&C Mortgages.

Looking at mortgages offered by the UK’s ten biggest lenders, it found that the interest rate on the average two-year fixed rate deal offered to someone with a 40 per cent deposit had climbed by 1 per cent since October. 

This means that someone taking out a £150,000 repayment mortgage over a 25 year term, would now pay £70 more each month than they would have done in October. This works out as an extra £840 each year. 

The increase to the two-year average rate would mean that a £150,000 mortgage will now cost over £800 more per annum for those eligible for the cheapest deals

Interest rates on five-year fixed mortgages have also risen, going up 0.92 per cent on average since October.

Those with 40 per cent deposits or equity are usually offered the cheapest mortgage rates, so borrowers with less than that are likely to see interest rates and monthly payments rise even more. 

Mortgage rates have been rising in recent months, fueled in part by the Bank of England’s decision to up the base rate, first in December from 0.1 per cent to 0.25 per cent, and then last month from 0.25 per cent to 0.5 per cent. 

The Monetary Policy Committee is set to meet again next week, and could decide to increase the base rate further. 

In summer 2021, buyers with 40 per cent deposits, or homeowners with 40 per cent equity built up in their property, could secure mortgage interest rates lower than 0.9 per cent.

Now the cheapest two-year fixed rate deal, which is offered by Nationwide, is 1.74 per cent with a £999 product fee.

On that deal, someone buying a property worth £300,000 and taking out a £180,000 repayment mortgage covering 60 per cent of the value over a 25 year term, will pay £744 a month, when including the fee with the mortgage. 

This is a far cry from Nationwide’s three year and five year fixes launched in July last year costing 0.94 per cent and 0.99 per cent.

The same borrower taking out the 0.94 per cent rate would be paying £677 a month when including the £999 product fee with the mortgage, a difference of £67 a month or £804 per year. 

David Hollingworth, associate director at L&C Mortgages said: ‘Mortgage rates have been shifting rapidly as lenders are forced to adapt to the impact of market expectation of higher rates on their funding costs.

‘The sheer pace of change is something that could take borrowers by surprise, especially when the cost of living and other outgoings such as energy are already rising too.

Top ten lenders average mortgage rates
October 2021 March 2022 
Average standard variable rate (SVR) 3.82% 4.14% 
Average 2 year fix  0.89%  1.89% 
Monthly payment  £557.87  £627.78 
Annual saving over SVR  £2,629  £2,107 
Average 5 year fix 1.05%  1.97% 
Monthly payment  £568.71  £633.59 
Annual saving  £2,499  £2,038 
Source: L&C 

Hollingworth said that, although interest rates were rising, they were still low compared to what they were a decade or more ago. 

He advised borrowers in a position to fix their mortgage deal now to do so, in order to protect themselves against further rate rises. 

‘Fixed rates are still at historically attractive levels, so borrowers should review their current deal to make sure that they are on the best deal and protecting their position, especially against a backdrop of rocketing outgoings and further potential increases in base rate.’

The average standard variable rate has also increased, climbing by more than 0.3 per cent to 4.14 per cent since October.

Homeowners have already been trying to get ahead of the curve, with many rushing to remortgage at the end of 2021 in a bid to avoid rising interest rates.

A total of £27.3billion of remortgages were agreed in the last three months of 2021, according to the Bank of England, the highest in three years.

However, this might not be the right course of action for everyone.  

What to do if you are due to remortgage this year

With mortgage products only lasting a matter of days in some cases, borrowers are bound to be worried about missing out on the best fixed deals if rates continue to climb.  

Knowing exactly when your current deal ends is vital, because leaving a fixed mortgage too early can result in early repayment charges of up to 5 per cent of the total amount. 

It may not be as simple as being exactly two or five years from when the mortgage started.

Some lenders, such as Nationwide, will fix for a number of years from the start date of the mortgage – also known as the completion date.

However, many fixed rate deals are fixed to a certain date, so it might be that you find you have either more or less time than you initially thought you had left to run on your mortgage.

You’ll be able to find this date on your mortgage offer letter or by contacting your lender. A mortgage broker should also be able to advise you on this.

Many borrowers do not realise that they can apply up to six months before their current deal ends to secure a new one and lock in the rate. 

Lender offers are typically valid for three to six months. 

Chris Sykes, associate director and mortgage consultant at Private Finance said: ‘If you know your mortgage is due for renewal this year, then definitely check when exactly it comes to an end and contact a mortgage broker to review your options six or seven months in advance of that date.

‘You can typically apply for a mortgage up to six months in advance of your current deal ending if moving to a new lender, or three to four months in advance if doing a product switch with your current lender.’

There are also some considerations to factor in if you are looking to secure a rate substantially ahead of time.

The cheapest two-year fixed rate deal on the market is currently being offered by Nationwide charging 1.74 per cent with a £999 product fee.

The cheapest two-year fixed rate deal on the market is currently being offered by Nationwide charging 1.74 per cent with a £999 product fee.

‘Not all lenders will work in the same way, so it’s really important to understand that the mortgage offer will remain valid for the right amount of time,’ said Hollingworth.

‘Some lenders will make their offers valid for six months from issue, whereas others may have shorter validity periods or impose specific completion deadlines on their products.

‘For example Halifax applies a completion deadline of 30 September 2022 on current remortgage deals – longer than six months.’

One other factor to watch out for when locking in an offer in advance of an existing deal ending is product fees, which can be non-refundable.

You can either choose to add these fees to the mortgage amount, and therefore pay them off alongside the loan over time, or opt to pay them upfront in one lump sum.

‘It’s important to understand if there are any fees that are payable upfront and whether those may be non-refundable,’ adds Hollingworth.

‘For example, if a valuation fee was payable then it would be unlikely that it was refundable and so if the borrower later elects not to go ahead they could incur some cost.’

What if you are due to remortgage next year

If you are currently on a fixed rate mortgage and the deal doesn’t end for another year, you may be considering switching anyway. 

However, the issue here is that you may be hit by an early repayment charge.

Most fixed-rate deals come with early repayment charges, which often range between one and five per cent of the outstanding mortgage amount.

In some cases the amount reduces as the mortgage deal gets closer to finishing. 

For example whilst in the first year of a five year mortgage deal you may be slammed with a 5 per cent charge, however, if you are in your final year, you may only be subjected to a 1 per cent charge.

The average standard variable rate has climbed by more than 0.3 per cent to 4.14 per cent, as the Bank of England prepares to meet again next week

The average standard variable rate has climbed by more than 0.3 per cent to 4.14 per cent, as the Bank of England prepares to meet again next week

Whether or not it is financially prudent to absorb an early repayment charge to take advantage of current rates depends on your circumstances. 

‘We have had some clients pay early repayment charges to lock in the competitive 10 year fixed rates we are seeing at the moment,’ said Sykes.

‘So it could be worth considering, but it would be very dependent on an individual’s situation.

‘How much the early repayment charge would be, their thoughts on interest rates medium and long term, how long they plan to be in the property etc.

‘The last thing you want is someone to pay a 3 per cent early repayment charge in a time of panic and then a year down the line rates haven’t risen much at all.’

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