Should you commit sooner rather than later? Or should you bide your time and see if rates continue to fall? Contractor mortgage expert Olivia Harland, a senior consultant at Cleerly, explains the pros and cons.
“In reality, there is no right answer to that question. With lenders currently cutting rates considering the Bank of England reducing base rate earlier this month, and with inflation for the 12 months to July increasing to 2.2%, there is never truly a ‘Goldilocks’ zone for interest rates.
“You could wait at the end of a fixed period, spend a few months on the lenders Standard Variable Rate and then get a lower rate, but what cost is the difference in a month or two at a likely 7%-plus SVR?”
A one-size fits all approach is a potentially costly strategy, as Olivia explains.
“When people come to me to review their options at the end of an initial rate term, my advice will always vary depending on who I’m speaking to, their appetite to risk, and their financial circumstances.
“For some people, a few months spent on lenders’ variable rates in order to lock in the best rate possible could suit, especially if there are financial events on the horizon that mean paying off lump sums fee-free are a possibility prior to committing to a new deal.
“For others, even one month spent on the lenders variable rate could cost hundreds of pounds, and the loss far outweigh the saving made in a reduction of 0.1% or 0.2%."
Olivia Harland, Senior Consultant at Cleerly
For most people, the initial exploratory work to investigate options is better performed sooner rather than later. The vast majority of lenders will allow you to commit to a new deal when you are within six months of the end of your current deal, meaning you can mitigate the risk of a worst case scenario where rates increase.
“The best thing is that even if you’ve secured a new deal, your broker can continue to monitor rates in order to jump to a better rate if one becomes available” adds Harland. “As we deal with lenders daily, we also often get an early indicator on when lenders are likely to review rates, meaning you can be ahead of the curve and ensure you’re getting the best rate for your circumstances.”
When looking at remortgaging, some borrowers naturally feel that it’s an easier task and therefore neglect the option of a mortgage broker in favour of going direct to a lender. An approach that can backfire, as Olivia concludes.
“As brokers we understand that an opportunity to cut out a fee-paying service can be seen as tempting. The perception is that a broker may not be needed for a simple product transfer. After all, nobody wants to pay a fee for a service if they don’t have to, do they?
“While this may work, the risk is that you simply don’t know if you’re looking at the best rate – or even lender – for your circumstances. Even a small difference in rate will far outweigh any potential fee saving, so the advice is clear, trust your broker, take their advice, and see the benefits on your mortgage balance.”