The fixed rate remortgage conundrum
As the year goes on, an increasing number of borrowers will be facing the dilemma of what to do once they come to the end of their fixed rate mortgage deals. Julia Harris, mortgage analyst at moneyfacts.co.uk, looks at the options available.
Tracker remortgage without penalties
“If you think rates are going to drop further and want to hold out for lower rates, before committing to a new fixed rate deal, there is an alternative to simply reverting to your current lenders SVR. A fee free tracker for term without a penalty could be the ideal solution. There are plenty of these available today, many offering additional incentives of free legal fees and free valuation for remortgage cases.
“Here is just a taster of the most competitive fee free tracker deals currently available.
Lender |
Rate |
Max LTV |
Fee |
Incentives |
Chesham BS |
5.74% |
90% |
£0 |
Remortgages refund 50% valuation and free legal fees and no HLC |
Norwich and Peterborough BS |
5.74% |
85% |
£0 |
Free valuation, £200 rebate or remortgages free legal fees and no HLC |
HSBC |
5.99% |
90% |
£0 |
Free valuation, remortgages free legal fees and no HLC |
Derbyshire BS |
6.00% |
95% |
£0 |
Free ASU for 3 months, no HLC |
Source: Moneyfacts.co.uk 13.2.08 |
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“Taking into account that the average SVR is currently 7.41%, these rates are well worth the effort of switching your mortgage deal, especially if it doesn’t involve you paying any set-up fees. The key benefit of these deals is that they are linked to base rate, so if rates continue to fall, as many are still predicting, so will your monthly repayments.
“The only factor to be aware of is exit fees, both coming out of your existing deal and then coming off these variable rates. Even if you do not have to pay a penalty, exit fees are still charged so make sure you are aware how much the lender charges, if it does at all.
Long term fixed rate remortgage
“Alternatively, if you want the stability of knowing what your monthly repayments will be and to prevent any anxiety over which direction rates are going to go next, fixed rates, especially over a longer initial period, are still very competitive.
“Not only are initial rates and fees on ten year deals cheaper than two year rates, but also the deals may also work out less expensive in the long run. Imagine after every couple of years having to pay another round of set-up fees (the average at the moment is around £1K and still rising) – and that’s without factoring exit fees into the equation.
“Below are some examples of larger lenders offering lower 10 year rates and the true cost of a 10 year rate, compared with the cost over 10 years of the two year rates as they are today.
2 year fixed rates vs 10 year fixed rates 2008
Lender |
Rate |
Period |
LTV |
Fee |
True cost |
Abbey |
5.79% |
2 years |
90% |
£675 |
£117,049.80 |
|
5.64% |
10 years |
90% |
£595 |
£112,640.20 |
Halifax |
5.89% |
30.4.10 |
90% |
£999 |
£119,761.80 |
|
5.69% |
10 years |
90% |
£999 |
£113,586.60 |
Nationwide BS |
5.85% |
2 years |
90% |
£499 |
£116,825.00 |
|
5.68% |
10 years |
90% |
£499 |
£112,977.40 |
Woolwich |
6.49% |
2 years |
90% |
£995 |
£126,399.40 |
|
6.19% |
10 years |
90% |
£995 |
£119,069.00 |
True cost based on £150K loan, repayment mortgage over 25 years |
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Source: Moneyfacts.co.uk 13.2.08 |
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“The automatic reaction for any prospective borrower looking at fixed rates is to fix in for two or three years. But Moneyfacts’ research shows that we are currently seeing a larger drop in longer term fixed rates. Unusually, 10 year fixed rates deals available today are cheaper than those over two years.
“Compared with a decade ago, 10 year fixed rates have become a lot more competitive. Then a long term fixed rate mortgage was an unpopular specialist vehicle – which meant that rates were comparatively high; a very different case to today.
2 year fixed rates vs 10 year fixed rates 1998
Lender |
Rate |
Period |
LTV |
Fee |
True cost |
Abbey |
5.90% |
1.3.00 |
95% |
£150 |
£115,625 |
|
7.30% |
1.3.08 |
95% |
£300 |
£130,986 |
Britannia BS |
5.99% |
2 years |
95% |
£295 |
£117,339.80 |
|
7.49% |
10 years |
95% |
£295 |
£133,196.20 |
Nottingham BS |
6.84% |
1.12.00 |
95% |
£0 |
£125,389.20 |
|
7.45% |
1.1.08 |
95% |
£0 |
£132,433 |
True cost based on £150K loan, repayment mortgage over 25 years |
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Source: Moneyfacts.co.uk 13.2.08 |
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25 year fixed rate remortgage
“After announcing his support to these deals, Alistair Darling will be pleased to see seven lenders offering 25 year fixed rate mortgages. Although 25 years may seem a step too far for some, the majority come with a 10 year tie-in. In other words if you want to come out of it after a decade, you can. Then again, if in 10 years’ time, rates are higher and you want to stay on the same rate, you also have the option of doing so.
Lender |
Rate |
Period |
LTV |
Fee |
Tie-in |
Cheshire BS |
6.14% |
25 years |
95% |
£899 |
1st 20 years with no penalty windows every other August from 2012. |
Co-operative Bank |
5.95% |
31.1.33 |
95% |
£599 |
To 31.1.18 |
Kent Reliance |
5.50% |
25 years |
75% |
£995 |
1st 25 years |
Kent Reliance |
5.98% |
25 years |
95% |
£595 |
1st 25 years |
Manchester BS |
5.74% |
30 years |
85% |
£895 |
1st 10 years |
Nationwide BS |
5.98% |
25 years |
90% |
£599 |
1st 10 years |
Nationwide BS |
6.58% |
25 years |
95% |
£599 |
1st 10 years |
Norwich and Peterborough BS |
5.79% |
30.4.33 |
90% |
£385 |
To 30.4.18 |
Scarborough BS |
5.89% |
29.4.33 |
95% |
£695 |
To 29.4.18 |
Source: Moneyfacts.co.uk 13.2.08 |
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“What may also put people off is thinking they will not only be tied to the same mortgage lender for quarter of a century but also to the same house. This is not the case; all these mortgages are portable, meaning that you can change the property they are secured against. Many lenders, especially the larger ones, will have a specialist team to deal with the move so it should not involve a great deal of hassle.
To fix or not to fix – your financial position may help determine the best option for you
“Anyone with even one eye on the financial markets will be seeing rates drop. So the decision to fix now or wait is up to the individual. If you want the stability of knowing where you stand in terms of monthly repayments, there are some competitive deals out there, especially if you are prepared to fix over a longer term than has traditionally been the norm. At this point it is also interesting to note that current rates are historically low, with Bank base rate having risen to a high of 7.50% in the last decade. If you want to wait a little longer and take the risk that rates will drop further, a fee free, no penalty tracker won’t tie you down.”
Moneyfacts Group
Moneyfacts is the UK’s leading independent provider of personal financial information and our data is used and trusted throughout the financial industry.
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