Wow, what a year (or so) it has been for the mortgage market. When Russia invaded Ukraine, the market became turbulent. Although the war sadly continues, the market is now calmer and easier to predict. We have seen the Bank of England base rate rise from its historic low of 0.10% to 4% in just 14 months. When Liz Truss was Prime Minister we saw the pricing of the average 2 year fixed rate hit over 6% and now we are starting to see these fixed rates drop closer to 4%.
Let’s cover a bit of background…
Since Rishi Sunak has moved into No. 10 we have seen a lot of tax and policy changes. The markets have reacted positively to those changes, and the forecasting of interest rates has become more predictable.
Since November last year we have had an unusual circumstance where the Bank of England base rate has been rising, but fixed rates have been reducing. So why is this?
Firstly, let’s talk about why the Bank of England base rate has been rising (and may still rise a little further). The Bank of England base rate has been rising to help combat inflation and there are positive signs that this is working and that prices globally are reducing. It is very widely forecast that the Bank of England base rate will peak at 4% or 4.5%. It is currently at 4% already, and so it could mean that we are already at the peak, or very close to it, if what is forecast by most is accurate.
Fixed rates are priced by looking at what the Bank of England rate is now and what interest rates are expected to do in the future. Nearly all the forecasts for what interest rates are expected to do in the future is that once inflation has dropped to a sensible level, the Bank of England base rate will reduce. This is why fixed rates have been reducing.
‘Why shouldn’t you just switch products with your current lender?’
So, coming back to the subject of this newsletter ‘Why shouldn’t you just switch products with your current lender?’
There are many reasons, but I’ll share my point with just 3 reasons why.
The most important reason is that your existing lender won’t advise you about better rates that come available once you have secured a product. Remember, we have been seeing fixed rates reduce and just yesterday, we switched a client onto a better deal which saved them £120 per month / £2,640 over the 2 year product term.
As part of our service to you, we proactively watch the interest rates and will switch you onto the better rate should one become available at no additional cost to you.
Another reason is to make sure you are choosing the right product for you. Typically speaking at the moment the lowest rates are 5 year fixed rates. So, should you go for this? Or, should you go for a product that tracks the Bank of England base rate? Or, maybe a 2 year fixed rate, even though it is higher at the moment? Should you go for the product with an arrangement fee or without?
A lender won’t give you any advice, and because of this it is common that the wrong products are selected. That could be because of how much the product actually costs over the term, or because the term itself doesn’t necessarily suit your objectives.
We will ask you some simple, but very important questions about your objectives and future plans which can have a big impact on what the best product for you is. We will then give you the advice you need to make the best choice for yourself.
Probably the most obvious reason is that your existing lender is only offering their own products. The mortgage market is so competitive right now and more often than not, it is best to remortgage to a new lender to get the best deal. As you know, we are independent, which means we will look at the whole of the market for the best deal for your circumstance and objectives. In the event that your current lender is offering the best deal, we will recommend your current lender, give you the advice you need, secure the product and proactively watch the rates for you….all without charging you a fee.
Your existing lender may be in touch with you as early as 7 months in advance of your current deal coming to an end, either by phone or letter. Please don’t ignore any letter, but rather than reaching out directly to your lender, reach out to us advising that you have received a letter. We will then be able to give you advice and a make a recommendation of what is best for you. Please do remember that we won’t charge you a fee if the best deal is with your current lender.
We are always here to help you!
All the best,
Kevin & the Team