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BRANAGANS

Accountancy Services Ltd

01709 327 215 | info@branagans.co.uk

February 2024 | A competition among mortgage lenders begins - here's how it impacts you

In the past year, interest rates surged, reaching the current Bank of England base rate of 5.25%. However, there's positive news for potential homebuyers or those seeking to remortgage. Several lenders, starting with Halifax and HSBC, initiated a competitive pricing battle, with Nationwide also joining this trend.

Notably, the UK's largest building society has introduced a leading five-year fixed-rate deal at 3.88% for a 60% loan-to-value (LTV), outperforming some competitors. For comparison, the closest rival, Yorkshire Building Society, offers a five-year fixed rate at 3.99%, as reported by Moneyfactscompare.co.uk.

With an estimated 1.6 million borrowers seeking new deals this year, many facing higher costs than their existing agreements which were secured during periods of lower base rates.

What about shorter-term fixed rates?

Perhaps surprisingly, the shorter-term fixed rate deals are more expensive. Nationwide still had the cheapest two-year fixed rate deal on a 60% LTV at the time of writing, at 4.37%, with Yorkshire Building Society again the closest rival, at the slightly higher rate of 4.49%.

For a three-year fix, you can get 4.44% again with Nationwide, and 4.49% again with Yorkshire Building Society, again on a 60% LTV. These are more expensive deals than the longer five-year fixed rates, which means if you are happy to tie yourself into a longer deal, you could be better off. This is because when you are looking at how much your mortgage will cost you overall, you also need to bear in mind that each time you change or rearrange your mortgage, you may have to pay fees on top that could reduce the benefit of the lower interest rate you can qualify for. So, it might pay to go for a longer-term fixed rate at a lower rate. But you would need to take specific mortgage advice to find out what the best solution would be for you.

Can you reduce the risk taken on a mortgage deal?

The difficulty with mortgages is that if you have a deal ending in, say, September, you need to start the process of remortgaging to get a new deal at least two to three months before the other one ends. But there is always a chance that we could see a big change in interest rates between now and then, or even during the period that your mortgage application is being considered. They could go up, or down.

However, depending on when you start the process of arranging your mortgage, you could use the term that the offer is valid for to your advantage. For example, if you know you go onto your lender's standard variable rate (SVR) in September when your current mortgage deal ends, you should start the process of getting a new mortgage offer sooner rather than later to give you the best options. A broker could be best placed to help you with this, especially if you're not confident about finding the best mortgage deal for yourself.

The main reason to start sooner is that a lot of mortgage lenders will make you an offer that will be valid for up to six months. This means you can lock in an interest rate in March and be guaranteed to get it should you choose to take up the offer before your current deal ends in September. This protects you from rates rising in the six months from when you get the offer to when you need to accept the offer.

If rates fall though, you can disregard that offer and take up a lower rate with a different lender if it suits you better. To check whether this is a good idea, you need to consider all costs associated with the mortgage offer you got first. You may find that, when all costs are taken into consideration, it isn't worth changing. But you do have the option by being smart and applying early.

Check the fees carefully

When you apply for a mortgage, you will usually be charged a product fee by the lender, and these can vary considerably. For example, Nationwide's five-year fixed rate at 3.88% comes with a hefty fee of £999. But its 4.09% five-year fixed rate comes with no fees, so depending on how much you need to borrow, you might find it is cheaper going with a slightly higher rate and no product fee than a lower rate with a meatier fee.

If you want to benefit from the six-month offer, then the lower the fee you pay to get this, the better because if you then choose to change to another mortgage if rates fall, it could result in another fee. So, it is important that you check the fees carefully and work with your accountant or a mortgage broker, to make sure you're not losing out when you take the fees and the interest due on the mortgage for the period of the deal into account.

We can help you

If you're seeking guidance on optimising a new mortgage offer before your current deal concludes, please reach out to us on 01709 327 215 or via email at info@branagans.co.uk. We're here to assist and are pleased to offer our support.

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