NEARLY one million homeowners will be hit with a mortgage shock this year when their existing cheap deal comes to an end.
Around 971,105 homeowners took out a five-year fixed mortgage in 2021, according to data obtained by Compare the Market from the Financial Conduct Authority through a freedom of information request.
Interest rates were much lower in 2021 and there were several five-year rates on offer below 2%.
But rates have soared since then and although they have since fallen, they are still well above historic levels.
According to data from L&C the lowest five year fix for a homeowner looking to remortgage is 3.89% across the ten biggest lenders.
As a result, the increase in interest rates could push up the cost of a mortgage by as much as £2,124 a year, according to Compare the Market.
The figures are based on average house prices in 2021 and a homeowner with a 25% deposit.
Meanwhile, borrowers who roll off their existing mortgage deal onto a standard variable mortgage could be hit with a bigger cost jump.
In total, around 1.8million homeowners are due to come off their fixed rate deals this year, according to UK Finance.
Sajni Shah, a mortgage expert at Compare the Market, said: “Even small differences in rates can add up to thousands over the life of a term, so shopping around, comparing lenders and locking in a competitive rate could make a huge difference in keeping rises to a minimum.”
It’s important to compare the rates on offer from different lenders to make sure that you are getting the best deal.
Use a comparison website such as MoneyfactsCompare or Go Compare to see what deals are on offer.
But make sure to consider the overall cost of the mortgage, fees and the rate before you lock in.
David Hollingworth, associate director at L&C Mortgages, said: “Starting the process several months in advance will help borrowers prepare for higher rates and enable a smooth transition to a new deal.”
Some lenders will allow you to lock into a deal up to six months before your existing deal ends, which will save you money if rates rise in the short term.
How to get the best deal on a mortgage
There are different factors that go into getting the best mortgage rate. Chris Sykes, technical director at broker Private Finance explains what you need to know.
The larger the deposit you have the lower the rates you’ll have access to.
The different deposit tiers offered by lenders are generally 0-1% deposit, 5%, 10%, 15%, then generally it skips to 25% and finally cash or equity of 40% or more.
There are some exceptions in between but these are usually the bands.
Lenders then set different rates for each of these tiers, rather than having one rate for a 12% deposit and another for 14%, for example.
With a deposit above 40% there is usually no price fluctuation, which means you’d get the same rate with a 50% deposit to a 40% deposit.
- Keep your credit score healthy
A better credit score doesn’t necessarily mean more competitive deals, but a negative credit could mean worse deals.
For example, there may be some people with not a lot of credit as they’ve never had a credit card, or loan, will get the exact some deal as someone who has more credit history and a better credit score.
However, a bad credit history or score starts to limit your lenders and means you may need to move off high street to a more specialist lender which tends to offer higher rates.
If you have poor credit, look for easy ways to improve it.
- Look six months before your fix ends
It’s best to look at deals six months before a current rate ends. This might be to just have a chat with a broker and get things moving.
It might be that you can get a deal lined up and locked in that protects against movements in interest rates – for example if rates were to go up over the following six months. And you can also then improve the rate within that six months if rates were to go down.
- How to find a good broker
A good mortgage broker is invaluable for navigating the options available to you.
The best way to find a good adviser is through personal recommendations, everyone has a friend or family member who will have recently bought or refinanced – ask them who they used and if they were happy with the service.
You can also lookup reviews of that person online to find other customer experiences too. Unbiased.co.uk is one place where people can offer their reviews.
IF you are looking to buy or remortgage, contact a broker nice and early, as they can then guide you through what the expectations are from lenders.
This gives you plenty of time to make sure your accounts are up to date if you’re self-employed and you can see if it is worth filing tax returns early.
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