The UK’s present economic climate can be best described, perhaps euphemistically, as ‘uncertain’. Volatile markets became difficult to predict as global issues met peculiar national circumstances; during the economic downturn of the coronavirus pandemic, house prices shot up by a significant fraction of their existing value.
Today, the markets are even more uncertain than ever. Key shifts in the property markets have made mortgages less sustainable, and led many households to seek remortgaging opportunities to avoid an interest rate penalty. If you are one such household, what do you need to know?
The Current Mortgage Market
The reason for growing conversation around remortgaging, specifically, is the state of the mortgage market today. Homeowners were beginning to suffer the results of increases to interest rates, brought about by the Bank of England to curb the steep rise in inflation rates throughout 2022. The situation was exacerbated, however, by the September 2022 ‘mini-budget’ drafted by short-lived Prime Minister Liz Truss and shorter-lived Chancellor Kwasi Kwarteng.
The mini-budget was an inflationary event, with proposed tax cuts for the wealthiest in society and cuts to public spending elsewhere. The Bank of England responded with the steepest rise in interest rates on record, which had significant impacts on mortgage rates and sent shockwaves through the housing market.
Today, the market has calmed slightly. Mortgage rates have come down from their precipitous highs, but remain well above pre-pandemic interest rates – resulting in an affordability crisis for many of the UK’s households.
Remortgaging or Product Transfer
Before we continue, it is important to flag up the two distinct options available to you as a homeowner considering remortgaging. The first is remortgaging your house, and the second is something called a ‘product transfer’.
The principal difference between these two options is that product transfers enable you to retain your relationship with your initial mortgage provider, transferring to a new product under the same roof. Remortgaging sees you pay off your initial mortgage with a second one, allowing you to benefit from potentially better rates at the expense of a slower process.
If any of this remains confusing to you, the best course of action would be to seek independent advice from a financial expert – though here, a word of warning need be given. Independent financial advice can sometimes result in financial negligence, where a consultant embezzles your money, advises you to perform an illegal financial manoeuvre or loses you money through poor counsel. As such, you should choose your adviser carefully.
Where to Start
Remortgaging can be a delicate yet drawn-out process. As such, it is wise to start the remortgaging process as soon as you can – or, at least several months before the end of your existing fixed-rate mortgage. Failure to plan this far in advance could see you bumped onto your mortgage provider’s variable rate before you can complete the process, with disastrous consequences. Your remortgageRefinancing an existing mortgage with a new mortgage. agreement would fall through, and you would have to start the process again – with potentially more expensive long-term results.