There are currently a variety of comments in the market suggesting that The Bank of England Base rate might double from an historically low 0.5% to 1% by the end of 2018.
Whilst predicting the future is a precarious business it is worth noting that The Base Rate has been rumbling along at next to nothing for a decade now and at some point rises are inevitable.
With many borrowers on fixed interest rates that are due to mature this year and next it is certainly worth considering your options now, before all lenders remove their best deals from the market. Many borrowers will be on low ‘teaser’ rates but a lender’s SVR (Standard Variable Rate) currently averaging at about 4.75%, with some lender’s SVRs as high as 5.99%!
With initial 18 month fixed rates still available at around 1% at the time of writing, consideration of your remortgage options now would be prudent.
Here are a few ideas to consider;
- Consider overpaying capital repayments now. Many lenders will let you pay up to 10% in overpayments each year and whilst interest rates are low taking advantage and repaying outstanding debt makes sense.
- Consider remortgaging. This might mean incurring charges for a remortgage and penalty charges for early repayment but with a wide variance between fixed rates still on offer and the SVR you might be paying on reversion, this option is still worthy of consideration.
- Reduce your Loan to Value by paying off debt. Effectively, you are introducing a larger deposit. If you can reduce your Loan to Value from 90% to 80%, or even 75% your borrowing costs will reduce considerably. Even a small saving on the interest rate you pay can run into thousands of pounds when compounded over the lifetime of the average mortgage.
- Consider offsetting savings against your secured debt (mortgage). Once very popular, especially amongst the self-employed, offsetting allows you to reduce the day to day cost of borrowing and increase the actual interest rate on cash savings by linking your savings to your mortgage and thus reducing your interest charges. If you have spare cash producing small annual returns, the offset option should be seriously considered.
- If you intend to borrow to improve your property, or move home, borrowing whilst there are still low interest deals available will help with affordability criteria. If you do this, make sure your own budget allows for any increases in interest charges after any fixed rate period you can secure. Ideally 5 years fixed would give you some stability, although lower 2 year deals are likely to be available.
When considering options here make sure you allow for the whole cost including redemption, penalty and arrangement charges and associated professional fees. This is sometimes difficult to do which is why we use software to ‘crunch the numbers’ on your behalf and best advise on the most cost-effective option for 2018 and beyond.
For more information contact us or speak to a mortgage adviser on 01628 507477.
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