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My five-year fixed-rate mortgage contract expires in mid-February, and when interest rates skyrocketed after the mini budget, I decided to act and get a new deal in advance.
I ended up opting for another 5.6 percent no-fee five-year fixed rate, directly with my mortgage lender. This is much more expensive than the five-year fixed rate of 1.8 percent I’m getting rid of.
I’ve read that mortgage rates have dropped, but can I switch to one of these lower rates or am I stuck with the deal I signed up for?
Too late? Our reader wonders if they can leave a mortgage they agreed upon and get a new one with a better rate
We have an outstanding mortgage of £240,000 with 20 years left on the loan, and our house is worth around £425,000.
While I can afford the mortgage deal I took out, I would of course be grateful for extra money to spend on my savings. Via email
Fran Ivens from This is Money replies: I am sure there are many people in your situation right now. Nobody had foreseen the rapid rise in interest rates last year after the mini-budget at the end of September.
The average two-year fixed rate peaked at 6.65 percent on Oct. 20, and the five-year fixed rate peaked at 6.51 percent on the same day.
Rates began to calm down as Jeremy Hunt took over as chancellor and Rishi Sunak as prime minister, but it’s been a hectic few weeks, so it makes sense that you wanted to recover as quickly as possible and protect yourself from further increases.
The good news is that there is more flexibility in mortgages than many people realize. You are not fully committed to a rate or product until you complete it, if you buy a home, or until your rate expires, if you take out another mortgage.
This means you may be able to go back and choose a lower rate.
We asked three mortgage experts for advice about your situation.
>> Will we see mortgage rates below 4% again this year?
Ups and downs: Mortgage rates have risen gradually since the Bank of England started raising base rates. They then peaked after the mini-Budget, but are now slowly declining
Matt Coulson, director and principal at Heron Financial, says: You are certainly not the only one who acted quickly after the mini-Budget. We saw a huge spike in activity, with many customers eager to get their hands on a new rate despite this uncertainty.
Fortunately, the situation has stabilized since then and mortgage rates have been falling steadily for several weeks. Depending on your circumstances, you could potentially get anywhere from 4 to 4.5 percent, so the motivation to look at something new is definitely there.
If you haven’t taken the new mortgage offer – and it sounds like you haven’t – it’s very likely that you can just let the lender know that you no longer wish to continue. You may lose some money as a result if you’ve paid non-refundable fees, though the potential savings on the monthly payment should soften the blow.
While time is short before your current deal expires, an efficient mortgage broker should be able to determine if you could benefit from applying for a new deal and hopefully allow you to complete before your current rate expires.
With most lenders, a customer can easily switch to a new rate before the mortgage application is completed.
I would talk to the lender and explain that you would like to switch to the new lower flat rate. They will advise you if this is possible and what steps to take.
Broadly speaking, those in your situation have three options. First, they can stay with the existing lender they have an application with and move to a new fixed rate as part of the remortgage.
They can also try to withdraw the current application and resubmit to a new lender at a lower rate.
Or finally, they can review the options with the existing lender and make a product transfer instead, if this proves to be a more cost effective option
Exit option: If mortgage rates fall before you take out your new loan, you should be able to get a better deal
Imogen Sporle, head of real estate financing at Finanze adds: We were all worried after the mini budget, worried that rates would continue to rise for years to come.
But to our surprise – a pleasant surprise – they have started to fall since December 2022 and are now stabilizing to show a more palatable market.
You’ll only get early repayment fees when you finalize the mortgage, so for a purchase, this is when you get the keys.
That said, booking or appraisal fees already paid by the lender will not be refunded.
What if you submit a purchase request?
Nicholas Mendes, mortgage technical manager at John Charcoal says: For a purchase application, if you need to be ready in a few days and there has been a rate change, trying to switch to a new rate will mean the lender will have to issue a new revised offer again, which can delay the set completion date.
Other lenders will allow you to change the rate, but this will result in a new application having to be submitted – meaning more time and a new hard search for your credit score. A broker or mortgage adviser can guide you in this.
Once the application is submitted, it is important that your circumstances do not change, including your credit score. Sometimes selecting a new rate or product means the lender may need to re-score or provide current documentation.
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