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How Does The Fluctuating Interest Rate Affect Remortgaging?

Oliver Whelan talks us through how fluctuating interest rates affect remortgaging.

What does it mean when the interest rate rises?

It’s no secret that interest rates have been on the rise for a number of months now. The Bank of England’s base rate has increased significantly over a short period of time.

When that happens, the lenders we have available to us put their interest rates up to reflect the market. So, every time the Bank of England’s base rate increases, lenders increase the rates on both new products and their variable rate products.

What will happen to interest rates in 2022?

No one knows exactly where this is going. If you look at the last couple of years, interest rates have been the lowest on record. They’ve been at 0.1% for such a long time.

It’s now creeping up, and is currently at 1%. But it’s important to remember that although rates are increasing relatively frequently at the moment, they’re not the highest they’ve ever been. A few years ago a standard product would have a much higher interest rate than you would potentially get now.

During Covid a lot of lenders stopped lending on higher Loan to Value ratios, and when these products were reintroduced a lot of lending was over 3%. We’re still just under that at the moment.

The last 18 months have been very good – interest rates were so low and people were securing really good mortgage deals. Now they’re creeping back up, some clients are nervous, because no one wants to be paying more than they have in the past.

But unfortunately that’s just the way it happens, sometimes. At one point you’ll have a mortgage with great rates and low payments, and at other times they’re going to be higher.

In answer to the question, I don’t know what’s going to happen. But if I had to make a prediction I would say we’re probably going to see rises for the next 12 to 18 months. Then they’ll start to come down again to help tackle inflation.

Why is it important to remortgage before interest rates increase?

We want to save our clients money, so we tend to remortgage a customer on a fixed rate around six months before that rate comes to an end.

At the moment we are hitting that as soon as possible, because we are seeing interest rates increase week by week. If we can secure a new product for our customers now, when their rate does come to an end they can switch over to a cheaper rate, secured six months previously.

If we leave it longer, that rate could have jumped up another 0.5% and that’s just interest – an extra cost to our client.

What other advice do you have on interest and mortgages?

If you look at most mortgages, they have a term of around 25 to 30 years. The average person will remortgage every two years or so to get a new fixed rate deal. Sometimes the rate will be higher, sometimes the rate will be lower.

The best thing you can do is speak to a mortgage broker who has access to all the different lenders and will give you the best advice. It doesn’t matter if the interest rates are higher or lower – an adviser will get the best rate available to you on the market currently. We’ll also set up a date to contact you when your rate comes to an end next time. And we repeat the process again and again over the span of 30 years.

Your property may be repossessed if you do not keep up with your mortgage repayments.