This month, £29bn worth of mortgages come to the end of their fixed terms, and homeowners who fail to switch deals could end up paying more than £2,500 a year in additional repayments.
A new report by L&C Mortgages has revealed that falling mortgage rates mean ‘the cost of doing nothing’ at the end of an introductory period has risen by nearly £400 in the past year.
Here, Which? explains why it’s important to switch deals, and offers advice on getting the best rate when remortgaging.
Cost of failing to remortgage tops £2,500
Most homeowners take out a fixed-rate mortgage when buying a home. With this type of deal, your interest rate and monthly repayments are locked in for a set period – most commonly two or five years.
At the end of the term, you’ll need to remortgage to another deal. If you fail to do so, you’ll be moved on to your lender’s standard variable rate (SVR), which is usually considerably more expensive.
L&C says that failing to shop around for a new mortgage at the end of your fixed term could mean your payments increase by £2,540 a year.
£29bn worth of deals set to end this month
L&C’s research comes at a significant time for UK homeowners, with October being a peak month for fixed-rate deals coming to an end.
A report by Yorkshire Building Society estimated that £29bn of mortgages will reach the end of their introductory term this month – the highest figure in 2021.
The good news for homeowners looking to switch is that mortgage rates have been falling, meaning big savings could be on offer.
L&C says the average two-year fix has dropped in cost by 0.47% in the last 12 months, while the average five-year fix has plummeted by 0.54%.
How fixed-rate deals and SVRs compare
L&C monitored the SVRs set by 10 of the UK’s biggest lenders, and found they averaged 3.82% both last year and this.
By comparison, the average lowest rate on a two-year fix this year is just 0.9%, or 1.05% for a five-year fix. L&C calculates that moving from a rate of 0.9% to 3.82% would leave you paying an average of £211 more each month.
Best remortgaging rates up to 95% loan-to-value
The cheapest mortgage rates tend to be available at up to 60% loan-to-value (LTV), meaning they’re only on offer to people with a lot of equity in their home.
Even if you can’t access a rate of below 1%, falling rates across the board mean you’d still be significantly better off not lapsing on to your lender’s SVR.
The table below shows the best rates available on two-year and five-year fixes at four popular LTV levels.
| Loan-to-value | Cheapest two-year fix | Cheapest five-year fix |
| 60% | 0.84% (Nationwide) | 0.94% (Nationwide) |
| 75% | 0.94% (TSB) | 1.13% (Nationwide) |
| 90% | 1.79% (Atom Bank) | 2.16% (Platform) |
| 95% | 2.69% (Atom Bank) | 2.99% (Atom Bank) |
Source: Moneyfacts, 14 October 2021. Remortgaging deals only.
Why do people stay on their lender’s SVR?
As part of our 2021 mortgage lender survey, we asked people about the type of mortgage they have, and 18% of respondents told us they have an SVR mortgage.
When we asked why they hadn’t switched, 38% told us they’re happy with their deal, and a further 17% said they hadn’t seen a better one elsewhere.
Worryingly, some respondents didn’t seem to be aware of the possible benefits of remortgaging to a cheaper rate, telling us they didn’t think switching was worth the hassle (19%), they hadn’t thought about it (11%), or that they meant to switch but hadn’t got around to it (10%).
When can I remortgage?
You can usually lock in a new mortgage up to six months before the end of your fixed term, so it’s worth shopping around ahead of time.
Getting a view of the market can help you understand how much you could save and whether you now own more equity in your home, meaning you can remortgage to a lower loan-to-value level.
Shopping around also gives you ammunition when you speak to your current lender about the best rate it can offer to keep your custom.
Tips on getting the best deal when remortgaging
If your mortgage is coming up for renewal, follow these tips to give yourself the best chance of getting a good deal.
1) Use a broker
With thousands of mortgages out there, comparing the cost of deals can be complicated and time-consuming.
Consider taking advice from a mortgage broker, who can assess the whole of the market to find you the most suitable deal for your circumstances.
2) Choose the right mortgage term
You might be tempted to fix your mortgage for five years to protect yourself against interest rate rises, but think carefully before rushing in.
Five-year deals can come with high early repayment charges, which you might trigger if you move home during the fixed period.
3) Understand the overall cost of the deal
Cheap rates are certainly tempting, but make sure there’s nothing nasty hiding in the small print.
Some lenders add up-front fees of up to £1,999 on their cheapest deals so, although you’d be saving on the rate, you’d be paying over the odds in fees.
Big up-front fees can mean that a deal with a much higher initial rate can actually end up being cheaper in the long run.
4) Give your current lender a chance
With dozens of banks out there, it’s unlikely that your current one will offer the cheapest deal on the market.
But even with this in mind, it’s worth getting hold of a quote to see how competitive it can be.
Switching to another deal with the same lender (called a product transfer) can be quicker and easier than remortgaging to a new bank, as you won’t usually have to go back through the affordability checks used when you first took out your loan.
