You asked
‘I agreed a five-year fixed rate remortgage at 6% in November, ahead of my deal ending in March. But rates have now fallen, is it too late to switch to a cheaper rate?’
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September’s disastrous mini Budget saw mortgage rates rocketing with some fixes rising above 6%. And there were concerns rates would climb further.
As a result, homeowners whose fixed rate mortgage was coming to an end were told to consider locking in a new deal in advance and lock in a lower rate. Mortgage customers can usually do so up to six months before the end of their current deal.
But then the markets started to calm, and so when the Bank of England put the base rate up again in December for the ninth time in a year, lenders didn’t react, because they had already priced these increases in and the element of risk was lower.
Now, four months later, inflation is starting to fall, albeit slowly, and, despite a recession forecast, economists are predicting a brighter outlook. As a result, interest rates on mortgages have started to fall. Capital Economics, a research consultancy, has forecast that the cost of mortgage borrowing will continue to fall for the next two years.
This is because rates on fixed-rate mortgages are dictated not just by the bank rate, but also by expectations of future borrowing costs – or swap rates. Once it is clear that the base rate has peaked, the market will start to adjust to the fact that future interest rate expectations will be starting to fall.
With all this in mind, it makes absolute financial sense for anyone whose current mortgage deal is coming to an end, to review their existingrate and see if a cheaper deal can be found.
How much are mortgage fixes right now?
Fixed rate mortgages have been falling since December 2022 and are now at a much more palatable level.
In November 2022, the average five-year fix was 6.32%. In December, this dropped to 5.8% and now the average is 5.26%. Many lenders offer lower rates too. At present, Halifax has a five-year fix at 4.18% up to 60% loan-to-value. Several more lenders have spoken of their plans to apply further reductions in the coming days and weeks.
Nick Mendes, of mortgage broker John Charcol, said: “I am expecting we will continue to see a decline in rates to be concentrated in the next couple of months with rates coming down to as low as 3.5%-3.8% by the middle of 2023.”
Should I get a fixed rate mortgage now?
Broadly speaking, you should ask yourself three questions if you are approaching the end of your deal. Should you withdraw and switch to a cheaper deal? Should you roll temporarily onto your lender’s standard variable-rate (SVR) deal until rates fall even more? Or is a tracker deal a better option?
The answer can depend on how much certainty you are looking for and what the potential savings are.
Mendes explains: “Homeowners coming to the end of fixed-rate deals may also save money in the long term by moving temporarily onto the lender’s SVR, or onto a discounted tracker rate with no early-repayment charges – and then waiting for fixed rates to decline further.”
Can I exit the fixed rate mortgage deal I’ve signed before it ends?
Yes. You are not fully committed to a rate or product until your current rate comes to an end or your new deal starts.
“Whether it is a new purchase, remortgage or product transfer, most banks and building societies will allow you to switch to a new rate before your mortgage application completes without any issues,” explains Mendes.
If you are looking to lock in a better fixed-rate deal, you have two main options. You can stay with the lender where you have the application and change to one of its cheaper fixes through a product transfer. Alternatively, you can withdraw the current application and resubmit with a new lender at a lower rate.
If the lender that has provided your current offer now has better rates on offer, it should be a relatively simple case of requesting a move to the new rate and for a new offer to be issued.
They may ask for up-to-date documents – for example, your latest payslip or bank statement. However, even when staying with the same lender, some banks may require a new application to be submitted, effectively starting the process again and up-to-date documents would be requested.
If you were to look for a new deal with a different lender (to whom the original mortgage offer is with), you would have to start the process again. A good broker, ideally one that doesn’t charge you a fee, will be able to highlight your options, as well as advising on some of the best deals for you.
If you go elsewhere, a new application will need to be submitted, meaning more time and another hard search on your credit file.
In any case, you’ll need to contact whoever you secured the deal through – so either your bank, building society or a broker, to assess your options.
Bear in mind that while there are no fees for changing the deal before it starts, you may lose some money in doing so if you’ve paid any non-refundable fees, although the potential saving on the monthly payment should help to soften the blow.
You’ll also need to consider timing. The process of applying, receiving an offer and for the legal work to be completed for a remortgage, can take a lot of time.
If you’re short on time, it may be worth switching to a cheaper deal with the same lender, instead of starting a new application elsewhere. Delays mean you risk being left on your current lender’s SVR, which can be expensive. However, you may miss out on cheaper rates elsewhere.
What about for buyers who have locked in a deal but not yet completed?
If you’re buying a home but have not yet completed, you should have the option of switching to a cheaper deal, but bear in mind that trying to move to a new rate will mean the lender having to reissue a new revised offer which could delay the set completion date.
You may have to submit a new application and could also be subject to another credit check.
What do the banks say?
We asked all of the major lender’s for a breakdown on their switching terms for new fixed mortgage deals that have been signed, but not yet begun. Here’s what they said:
| Lender | Can you cancel and switch to a cheaper deal with the same lender? | Are there any fees? | Can you cancel and switch to a new lender? Do fees apply? |
| Barclays | Yes | No | Yes, no fees apply. |
| Natwest | Yes | No, however, any fees paid on the previous application may not be refunded. | Yes, no fees apply. |
| Santander | Yes, but this must be done at least 14 days before the original deal is due to start. | No, however, any fees paid on the previous application may not be refunded. | Customers cannot cancel a deal once agreed. |
| Lloyds | Yes, but you would need to do a new application. | No, however, any fees paid on the previous application may not be refunded. | Yes, no fees apply. |
| Nationwide | Yes | No, however if you previously selected a product with a £999 product fee, you would need to cancel the deal to get a refund. | Yes, but you would need to request a refund on any previous application fees. |
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