THOUSANDS of mortgage borrowers could see their repayments nearly double in the next few months as many ultra-low fixed rates come to an end.
It is two years since Britannia building society launched the lowest-ever two-year fix without extended penalties, at 3.24%.
THOUSANDS of mortgage borrowers could see their repayments nearly double in the next few months as many ultra-low fixed rates come to an end. It is two years tomorrow since Britannia building society launched the lowest-ever two-year fix without extended penalties, at 3.24%.
Up to 200,000 borrowers will be coming off these rock- bottom rates over the next few months, according to Capital Economics, a consultancy.
Someone with a £150,000 interest-only mortgage on Britannia’s rate of 3.24% will see their monthly payments nearly double from £405 to £793 if they fail to switch to another deal once the fixed rate ends. This is because they will automatically move on to Britannia’s standard variable rate (SVR) of 6.35%.
Most borrowers on these cheap deals will have a couple of months left to run on the low rate, giving them time to apply for a new mortgage and avoid the big leap in repayments.
David Hollingworth at L&C Mortgages, a broker, said: “If you are on one of the low fixes, you should start thinking about remortgaging now to make sure that you do not end up on the lender’s SVR. It usually takes between six and eight weeks from application to completion, so you need to think ahead. You can instruct your solicitor to complete your remortgage so that it coincides exactly with the end of the fixed period.”
Mortgage rates are higher now than they were two years ago because of base-rate rises. The Bank of England has raised base rate from a low of 3.5% in November 2003 to 4.75% today.
But the good news for borrowers looking to remortgage is that fixed rates have dropped in recent months, reflecting expectations that the Bank will cut rates this year, possibly as early as next month.
Last week, the minutes of the Bank’s monetary policy committee meeting in July revealed that members voted only narrowly to keep the rate on hold at 4.75% this month, with five members in favour and four against. This raised expectations in the money markets that the Bank will cut base rate to 4.5% in August with another quarter-point reduction before the end of the year.
The first thing you should do if your mortgage deal is coming to an end is contact your lender and see what it can offer you. Some firms, such as Britannia, offer existing borrowers the same deals as new customers. Others will make specific products available to those coming to the end of their current deal.
Yorkshire building society, for example, is offering just two alternative products to customers coming off its 3.29% two-year fix. The first is a stepped deal which is fixed at 3.99% for the first 12 months and then 4.69% for the second year. Or they can go for a straight two-year fix at 4.34%.
These appear more expensive than the market-leading two-year fix from Newcastle at 4.22%, but the advantages of sticking with the same lender are that you avoid paying an exit charge, and there are no valuation or legal fees.
However, you still have to pay an arrangement fee and some lenders also levy a transfer charge. You therefore need to take all these costs into account to work out if you will be better off switching lenders or sticking with your existing firm.
You should also ask your current lender when you can apply for another of its loans — the firm may have a good deal now, but there is no guarantee it will still be available when your fixed rate comes to an end.
Other lenders were offering two-year fixed rates below 3.4% at around the same time, including Yorkshire and Chelsea building societies and Alliance & Leicester (A&L).
Up to 200,000 borrowers will be coming off these rock- bottom rates over the next few months, according to Capital Economics, a consultancy.
Someone with a £150,000 interest-only mortgage on Britannia’s rate of 3.24% will see their monthly payments nearly double from £405 to £793 if they fail to switch to another deal once the fixed rate ends. This is because they will automatically move on to Britannia’s standard variable rate (SVR) of 6.35%.
Most borrowers on these cheap deals will have a couple of months left to run on the low rate, giving them time to apply for a new mortgage and avoid the big leap in repayments.
David Hollingworth at L&C Mortgages, a broker, said: “If you are on one of the low fixes, you should start thinking about remortgaging now to make sure that you do not end up on the lender’s SVR. It usually takes between six and eight weeks from application to completion, so you need to think ahead. You can instruct your solicitor to complete your remortgage so that it coincides exactly with the end of the fixed period.”
Mortgage rates are higher now than they were two years ago because of base-rate rises. The Bank of England has raised base rate from a low of 3.5% in November 2003 to 4.75% today.
But the good news for borrowers looking to remortgage is that fixed rates have dropped in recent months, reflecting expectations that the Bank will cut rates this year, possibly as early as next month.
Last week, the minutes of the Bank’s monetary policy committee meeting in July revealed that members voted only narrowly to keep the rate on hold at 4.75% this month, with five members in favour and four against. This raised expectations in the money markets that the Bank will cut base rate to 4.5% in August with another quarter-point reduction before the end of the year.
The first thing you should do if your mortgage deal is coming to an end is contact your lender and see what it can offer you. Some firms, such as Britannia, offer existing borrowers the same deals as new customers. Others will make specific products available to those coming to the end of their current deal.
Yorkshire building society, for example, is offering just two alternative products to customers coming off its 3.29% two-year fix. The first is a stepped deal which is fixed at 3.99% for the first 12 months and then 4.69% for the second year. Or they can go for a straight two-year fix at 4.34%.
These appear more expensive than the market-leading two-year fix from Newcastle at 4.22%, but the advantages of sticking with the same lender are that you avoid paying an exit charge, and there are no valuation or legal fees.
However, you still have to pay an arrangement fee and some lenders also levy a transfer charge. You therefore need to take all these costs into account to work out if you will be better off switching lenders or sticking with your existing firm.
You should also ask your current lender when you can apply for another of its loans — the firm may have a good deal now, but there is no guarantee it will still be available when your fixed rate comes to an end.
Remortgage news from the times
Remortgage home page
