Remortgaging 2023: Should I fix my mortgage now? - Times Money Mentor (2024)

The Bank of England has chosen to keep the base interest rate at 5.25% in December, raising hopes that we might have reached the peak. So is now a good time to find a new deal?

Mortgage holders will be wondering if that really is the case. Almost 900,000 fixed rate deals will come to an end in the second half of 2023. While mortgages are substantially more expensive than two years ago, rates have been easing downwards. How far will they fall?

In this article, we set out:

• Is now a good time to remortage?
• Can remortgaging save me money?
• Should I get a two or five-year fixed rate mortgage?
• The advantages of remortgaging now
• What to do before remortgaging

Read more: When will mortgage rates fall?

What’s happening to UK mortgage rates?

Mortgage rates began rising in late 2021 on the expectation that the Bank of England would begin increasing the base rate of interest from its record low of 0.1%.

That December saw the first of the central bank’s 14 consecutive rises in its effort to tackle soaring inflation. You can read more about how interest rates affect inflation.

Mortgage rates also surged in the wake of last year’s mini-budget as markets panicked over unplanned government borrowing. Rates peaked at 6.55% at the end of October 2022 before falling back again.

However, in May 2023, with inflation stubbornly high, analysts hiked their expectations for the Bank of England base rate. As a result, mortgage rates rose again.

In August, the Bank of England increased the rate by 0.25 percentage points to 5.25% but held it in their September meeting. This has prompted speculation that interest rates have peaked.

Andrew Montlake from the broker Coreco told The Times: “We must be at the stage where this is the final or penultimate increase, and these rises are already priced into mortgage rates.”

The average two-year fixed rate is now 6.56%. The average five-year deal is 6.06%, according to Moneyfacts. Compare these rates to December 2021 before the Bank of England raised the base rate from its record low:

• Back then the average rate on a two-year fixed-rate mortgage was 2.34%
• While a mortgage fixed for five years charged 2.64% on average

But just because mortgage rates are higher than they were a year ago doesn’t mean it’s a bad time to remortgage.

Is now a good time to remortgage?

Whether you are coming to the end of your current fixed-rate deal or are one of the 25% of homeowners in the UK currently on variable rate mortgages, you might be wondering what to do next.

Mortgage rates have been falling since the last rate rise in August – albeit slowly. With inflation expected fall to around 5 per cent by the end of this year, from its current level of 6.7%, many experts believe further mortgage rate cuts could be on the way.

“I expect we may see a 4.99 per cent five-year fix by the end of this year,” said Mortlake.

Nicholas Mendes from the broker John Charcol told The Times that he expected the average two-year fixed rate to be around 5 per cent by the end of 2023, but that they were unlikely to go lower than that.

So is it better to fix now or wait and take a punt on rates falling further and wait?

Can I fix a new deal before the end of my current deal?

Remember that if your fixed deal is coming to an end within the next six months, you might be able to lock into a new one now. Many lenders will allow you to do this without having to commit to it (as long as it has not started).

This means that if mortgage rates continue to fall, you can drop that deal without being charged and search for a new one. Conversely, if rates rise, then you bagged yourself a better deal six months before.

Locking in a deal before your current one expires also means that you won’t risk rolling on to your lender’s costly default rate.

Should I move on to my lender’s standard variable rate and wait?

If mortgage rates fall further and you have signed up to a fixed deal, you will be stuck paying the higher rate until the product term ends – which could be years.

You might be tempted to roll on to your lender’s SVR at the end of your current fixed deal and wait for mortgage rates to fall further. This would be a gamble as no one knows what will happen next to rates. It could work out cheaper in the long run, but it might not.

Standard variable rate mortgages are generally more expensive than fixed-deals. Currently the average two year fix is 6.56%, the average five year fix is 6.06%, while the average SVR is 8.09%.

For example, with a £250,000 mortgage over a 25 year term, waiting six months on the average SVR will cost you £11,670. If after six months you can get a two year fix at 5%, you will have paid £37,986 after 2 years (£11,670 + (£1,462 x 18 months)).

If you lock into a two year fix now at 6% you will have paid £38,664 after 2 years (£1,611 x 24).

Should mortgage rates rise in six months, you could end up paying even more.

There is no way of knowing the direction in which mortgage rates will go, but it is possible that they will continue to fall this year. Lenders factor in interest rate predictions when pricing their fixed rate mortgages and the expectation is that the base rate may have peaked.

Homeowners and buyers too are under increasing financial pressure with the combination of high rates and high house prices. Lenders have responded by cutting their rates over the last couple of months.

See what mortgages might be available to you with our comparison tool.

So, should I fix my mortgage?

If you think that mortgage rates will come down in the future then it might be better to consider a shorter two or three year fixed term deal. Many people like the certainty of knowing how much is coming out of your account in mortgage repayments each month.

If you don’t mind the uncertainty and aren’t keen on being tied down to a fixed deal, then a tracker mortgage is an option. These tend to allow you to leave the deal without a fee.

The bottom line is that you need to do the maths and work out which is the better option for you.

It’s unlikely to be a good idea to switch until your mortgage deal is about to come to an end. You could end up forking out for early repayment fees. We explain more on the risks of remortgaging early.

If you want to remortgage early, make sure there are no exit fees or early redemption penalties. These could be thousands of pounds.

It is worth speaking to your current mortgage provider to see if a product transfer would be cheaper. This is where you stay with your existing lender but move on to a different mortgage. It might also be easier than switching to a new provider, as you will usually be able to forego the usual affordability checks.

Consider speaking to a mortgage broker to give you an idea of the best deals or check out our free mortgage comparison tool.

How long should I fix for?

If you have decided that you want to get a new fixed rate deal, the next question you need to consider is how long to fix for.

Should I get a two or a five-year fixed rate mortgage?

There is currently not a huge difference in the average two-year and five-year fixed mortgage rates. In September 2023:

• Two-year fixed rate mortgage = 6.56%
• Five-year fixed rate mortgage = 6.06%

If you lock into a five-year fixed rate mortgage rather than a two or three-year fix, you will have certainty for longer and will be protected from potential future mortgage rate increases. The flip-side, is that if mortgage rates continue to fall, you will be stuck paying a higher rate.

Additionally, if your plans change and you end up moving, you will usually need to fork out for early exit charges unless it’s a portable deal.

Unfortunately, we can’t predict the future, especially with the markets experiencing such a high degree of turbulence over the past six months.

So when deciding whether you should lock into a mortgage for two or five years, you need to decide based on your individual circ*mstances.

Of course you could get a longer fix. Here we explore the pros and cons.

What are the advantages of remortgaging?

When a fixed, tracker or discounted mortgage deal ends you no longer benefit from a preferential rate. Instead you will automatically move onto your lender’s (generally) more costly standard variable rate (SVR).

So one of the main reasons that many people choose to remortgage is that they might be able to save money by switching to a cheaper deal.

You may also be able to do this with a product transfer where you switch to a different deal with the same lender.

If you took out a two-year fixed mortgage rate before December 2021, at the average rate of 2.34%, the repayments on a 25-year mortgage deal of £250,000 would cost £1,102 a month.

If you then moved on to an SVR, which is currently 8.09% on average, by not remortgaging, it would cost £1,945 a month. That’s £843 extra each month or £10,116 in additional mortgage repayments a year.

Another advantage of remortgaging might be that you can also ask to borrow more money to carry out home improvements or pay off more expensive debts like credit cards. It is important to consider that in the long-term you could end up paying more back in interest.

You can also lower or increase your mortgage term when you remortgage if you meet the bank’s eligibility criteria. Find out more about how soon can you remortgage here.

What should I do before remortgaging?

There are a number of things to do and consider before you remortgage or get a product transfer:

• Get planning three to six months before your current deal expires
• Smarten up your credit file (read how to increase your changes of getting a mortgage)
• Find out how much you can borrow based on your earnings and circ*mstances now, not when you first took out the mortgage
• Scour the market and lock into the best deal (you might be able to do this up to six months before your old deal expires)
• Consider speaking to a mortgage broker for more guidance, especially if you are self-employed or on a variable income
• Check for any early repayment charge or exit fees

Easy ways to get approved for a mortgage

There are some quick wins you can do now that will increase your chances of being approved for a mortgage. These include:

• Get on the electoral register for your current address
• Reduce unnecessary outgoings like subscriptions or memberships. You will have more disposable monthly income should you need to pay for an unexpected expense. Your lender will look favourably on this.
• Choosing a five-year fixed mortgage rate can improve your chances of passing a lender’s affordability checks. Banks often use a more lenient calculation when working out if you can afford the annual or monthly repayments on a five-year remortgage deal.

Find out more and compare the best remortgage deals.