Your Complete Guide to Remortgaging in 2023 – Get the Best Deal and Save Money
The mortgage market in 2023 continues to experience turbulence, and fixed-term deal rates are steadily climbing. This surge in rates is primarily attributed to the persistence of high “core inflation” figures, which emerged in April and escalated in May. Although there has been some decline, with the latest figure standing at 6.8% in July, the mortgage landscape remains uncertain due to the recent increase in the Bank Rate by the Bank of England.
Approximately 2.5 million homeowners are set to transition from fixed-rate mortgage deals throughout 2023 and 2024. For many, this shift will entail refinancing at rates nearly double what they were accustomed to. Notably, the average two-year fixed mortgage rate has soared to 6.79%, a stark contrast to the rates below 3% seen in 2021.
Current Mortgage Rate Trends
As of now, the average two-year fixed mortgage rate stands at 6.79%, while the average five-year fixed rate is marginally lower at 6.28%, according to analysis by Moneyfacts. This represents an increase from the previous peak of 6.65% witnessed in November 2022 after Liz Truss’s mini-Budget.
The Impact of Bank Rate Increases
The Bank of England has implemented 14 consecutive increases in its central interest rate, known as the Bank Rate, since December 2021. The recent hike brought the rate to 5.25% in August. Mortgage customers have felt the effects of these increases as lending costs have risen in tandem. However, mortgage rates are influenced by various factors, including swap rates, which have shown a recent decline.
While the escalation in mortgage rates was partly due to core inflation, reaching 7.1% in May, subsequent months have seen a drop to 6.9% in June. Although inflation remains high, this could suggest that the peak of the Bank Rate might be lower than previously estimated. Some major lenders have even responded by reducing their mortgage rates.
Finding the Best Interest Rates
For those considering remortgaging, the hunt for the lowest interest rates is a priority. MPowered Mortgages offers the cheapest two-year fixed rate at 5.66% for borrowers remortgaging, requiring a 40% deposit and a £2,495 fee. Meanwhile, Virgin Money presents the best five-year fixed rate at 5.23%, accompanied by a £1,295 fee and a minimum 35% deposit. It’s crucial to note that the appeal of the lowest interest rates should be balanced against associated fees, as these can potentially overshadow minimal savings on similarly priced rates.
Adrian Anderson, a broker at Anderson Harris, emphasizes the importance of considering the overall cost of a deal, including fees and lender contributions to valuation and legal processes. Moreover, for those committing to mortgages longer than two years, it’s vital to assess potential early repayment penalties, which could be substantial.
Duration of Fixed Rates
Over 1.4 million borrowers will encounter higher rates this year as their fixed deals conclude, according to the Office for National Statistics. Despite the decline in fixed rates, borrowing costs still remain elevated compared to rates secured two to five years ago. Experts advise a two-year fixed rate for most borrowers, allowing them to minimize time spent on an inflated rate. Predictions indicate mortgage rates might drop by 2025, providing an opportunity for more affordable repayments. However, market unpredictability means that individual financial circumstances will dictate the optimal fixed period.
Securing the Best Mortgage Rate
Higher equity in a property translates to lower risk for lenders, increasing the likelihood of securing lower interest rates. Banks utilize the loan-to-value ratio (LTV) to determine lending against a property. A lower LTV and larger deposit translate to reduced interest rates. Paying down part of the mortgage to improve the rate is a strategic move for those with available funds. Additionally, offset mortgages offer an alternative for those with significant cash reserves, allowing them to utilize savings to reduce loan costs. Seeking advice from mortgage advisers is crucial, especially in the evolving market landscape.
Interest-Only Mortgages
Homeowners facing mortgage payment challenges can explore interest-only deals without a formal repayment plan. The Financial Conduct Authority introduced this option to facilitate mortgage forbearance. However, after the interest-free period ends, homeowners must adhere to a credible repayment plan for a permanent interest-only deal.
In the ever-changing landscape of the mortgage market, thorough research, understanding the variables influencing rates, and seeking professional advice are essential for securing the best remortgaging deal in 2023.