Rate Wars & Remortgaging

The Rate War that seems to have started raging in the market, due in no small part to the Governments Funding for Lending Scheme and the recent falls in the cost of funds, is not just the preserve of buyers desperate to get on to the property ladder and take advantage of historically low rates.

With lenders still prone to increasing their Standard Variable Rates, such as Santander who recently announced they are increasing their rate by a whopping 0.5% to 4.74% as of October, if anything, it is remortgage customers with decent levels of equity in their properties, who now find themselves with a sudden decision to make.

As a general rule it used to be the case that if any five year fix began with a 3, then you should grab it with both hands and never let go. Now they are starting with a 2! Even if rates stay low for 3 or 4 years, with a product priced at 2.95% it is hard to see where any borrower would lose out dramatically, as long as flexibility is not a key driver.

The prospect of long term cheap money such as this, might be enough to entice those who have procrastinated on a variable rate to finally make a move. It is hard to predict whether these products will be a permanent feature or not.

For some however, it may not be so simple and care should be taken to weigh up the pros and cons. Some will find the mortgage market a very different place to when they took out their existing mortgage as changes in lenders criteria, especially around income verification and interest only for example, could cause issues.

Longer term fixes are also not suitable for everyone either. Although many deals will allow you to overpay up to 10% annually without penalty and are portable should you wish to move home, this still imposes certain limits on flexibility.

You also have to price in the costs involved as arrangement fees of over £2,000 can be charged, negating the benefit for those with smaller loans remaining.

Nevertheless, there will be whole swathes of borrowers with equity and a good income who would have no such issues.

For anyone who is coming to the end of an existing product and moving on to their lender’s standard variable rate it is always worth looking around to see what else is available.

There is now a very good chance that you will find a cheaper product in any case and many lenders throw in a free valuation and legal fees to keep remortgage costs down.

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