Remortgage to cut your monthly payments
A bank or building society often offers introductory ‘teaser’ rates to new customers, either at a lower variable rate, or a fixed rate for an introductory period.
Once this is up, your monthly payments can rocket as your deal will likely revert to your lender’s standard variable rate (SVR) – which is usually much higher.
Moneywise is here to search the market each week to find the most competitive deals for you, whether you’re looking to fix for a longer period or take out a variable rate product.
Our example mortgage hunter is looking to remortgage on their £200,000 property, and will be looking to borrow £100,000 over 15 years – so they’re looking for a 50% loan to value (LTV) deal. Our buyer has decided to pay fees up front to avoid being charged extra interest.
Fixed rate mortgages
Moving to another mortgage provider will involve going through its application process and affordability criteria. Fixing you mortgage will protect you from future interest rate rises but you may incur fees in the process. Do your homework and make sure a new deal is worth it.
Platform, up to 60% LTV, 1.73%
Fixed until 31 May 2019 then reverts to SVR (currently 4.74%)
This deal comes with no fees and £250 in cashback. Monthly repayments are £631 and the annual cost is £7,523. This reverts to a 4.74% SVR when the fixed rate expires.
Barclays, up to 50% LTV, 1.65%
Fixed until 31 May 2019 then reverts to SVR (currently 3.74%)
This is a 1.65% product, fixed until May 2019. Monthly payments are £628, giving an annual cost of £7,525. This product also comes with £200 cashback and is available up to 50% loan to value.
Long term fixes
At the moment it’s still relatively cheap to fix your mortgage repayments for the longer term. The best deals are available for well under 3%. However, monthly repayments are much higher than shorter fixes, so it only makes sense if you expect rates to rise in the next few years.
HSBC, up to 60% LTV, 1.94%
Fixed until 30 June 2022 then reverts to SVR (currently 3.69%)
The rate is 1.94% - fixed until 2022 - and there’s no fees. That’ll cost £641 a month and £7,724 each year. Our buyer will revert to a standard variable rate - currently 3.69% - after this fixed period.
First Direct, up to 60% LTV, 2.49%
Fixed for 10 years then reverts to SVR (currently 3.69%)
If you're willing to lock in for 10 years then this deal from First Direct comes with a low 2.49% rate £35 fee. The repayments will be £666 per month, or £8,013 on an annual basis.
If you think the Bank of England’s base rate is likely to stay the same or fall then a variable rate could be best for you. However, if these rates rise at any time you could be left out of pocket.
Coventry Building Society, up to 50% LTV, 1.25%
Variable for term
Coventry Building Society currently offers the cheapest variable rate deal at 1.25%. Monthly repayments are £610 with initial fees of £999 – this represents an annual cost of £7,395.
While interest-only offers can be tempting, you’ll need a solid plan to pay off the capital at the end of the loan. You should also factor into your decision-making the interest you owe won’t diminish as you won’t be paying off your debt as you would with a capital repayment mortgage.
Not all providers will lend on an interest only basis, so your best bet could is likely to get a mortgage via a broker. Indicative rates can be found in our mortgage comparison tool.
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Every mortgage lender has a standard variable rate of interest, or SVR, on which it bases all its mortgage deals, including fixed and discounted rate and tracker mortgages. When special deals come to an end, the terms of the deal usually state that the borrower has to pay the lender’s SVR for a period of time or pay redemption penalties. The lender’s SVR is, in turn, based on the Bank of England’s base lending rate decided by the Bank’s Monetary Policy Committee (MPC). Every time the MPC raises its rate, mortgage lenders generally increase their SVR by the same amount but when the MPC lowers its rate, lenders are often slow to pass this on or don’t pass on the full cut to borrowers.
A “traditional” mortgage, where the monthly repayments entail of repaying the capital amount borrowed as well as the accrued interest, so that during the loan period the capital debt is gradually paid off so by the end of the term the mortgage has been fully repaid. One advantage of a repayment mortgage is that it removes the risk of having a parallel investment (such as an endowment policy or pension), the performance of which is dependent on the stockmarket, such as with an interest-only mortgage.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.
Loan to value
The LTV shows how much of a property is being financed and is also a way to tell how much equity you have in a property. The higher the LTV ratio the greater the risk for the lender, so borrowers with small deposits or not much equity in the property will be charged higher interest rates than borrowers with large deposits. The LTV ratio is calculated by dividing the loan value by the property value and then multiplying by 100. For example, a £140,000 loan on a £200,000 property is a LTV of 70%.