Homeowners coming to the end of their mortgage deal can now snap up a better rate up to six months in advance as banks compete to stop borrowers moving to a rival lender.
With interest rates at record lows and unlikely to drop further, experts say now may be the perfect time to lock into a cheap deal.
Typically, mortgage lenders inform borrowers of new offers two to three months before the end of their existing fixed term.
Right time: With interest rates at record lows and unlikely to drop further, experts say now may be the perfect time to lock into a cheap deal
Once borrowers are approved for a new rate, remortgage offers are then usually valid for up to three months.
But over the past month, Nationwide and Barclays have both extended their offer periods.
Nationwide has now increased the length of its remortgage offers from three to six months.
This means new and existing borrowers can lock into a new rate from Nationwide now and it will be reserved until January.
Nationwide’s top two-year fix is 1.59 per cent for borrowers with a 40 per cent deposit. With a typical £150,000 loan, borrowers would repay £606 a month.
Over two years, including a fee of £999, you would pay £15,543. Existing borrowers can access a slightly lower rate of 1.49 per cent.
Barclays also began a trial in June that offers its existing customers the chance to choose from the bank’s current range of deals five months in advance.
So a Barclays borrower, whose mortgage deal expires on October 31, can pick a new rate now, which will take effect from November 1.
Barclays customers with a 40 per cent deposit can currently reserve a two-year, fixed rate at 1.42 per cent.
On a loan of £150,000, the monthly repayments would be £594. Over two years, including a fee of £999, you would repay £15,255.
This rate is also available to new customers, but it can only be reserved for three months.
Meanwhile, Santander allows its borrowers to move to a new deal up to six months before their current rate has expired, penalty free, if the new rate is lower.
Typically, mortgage lenders inform borrowers of new offers two to three months before the end of their existing term. But Nationwide and Barclays have both extended their offer periods
If the new rate is higher, the bank will wait until your current deal has expired before switching you across.
The bank does not publish its rates for existing customers. Santander, like Nationwide, also has six-month mortgage offers for new customers.
Mark Harris, chief executive of mortgage broker SPF Private Clients, says the changes are great news for homeowners who want to plan ahead.
He says: ‘Planning well in advance means there is less chance that borrowers will slip on to their lender’s more expensive standard variable rate.
‘Knowing so far in advance what your own lender can offer also stops you wasting time and money beginning the process of switching to a new bank, only to find, with just a few months left before your deal expires, that the best rate is right on your doorstep.’
Borrowers may welcome the opportunity to grab a new low, fixed rate now, due to the recent uncertainty over whether the Bank of England will make changes to interest rates later this year.
The financial markets are speculating that the 0.75 per cent base rate may be cut in the second half of the year.
Borrowers may welcome the opportunity to grab a new low, fixed rate now, due to the recent uncertainty over whether the Bank of England will make changes to rates later this year
Some economists, however, believe the rate may be gradually increased. The second Brexit deadline looms in October, which may also have an impact on interest rates.
If you do choose a new rate now, and rates fall, most lenders will let you pick a new deal. But it could cost you money.
Existing borrowers can usually switch to a new rate, but new customers could be charged if they pick a new deal when a mortgage offer has been issued.
Some mortgages have a booking fee and others an arrangement fee. A booking fee is charged to reserve the rate and is usually non-refundable, while an arrangement fee, sometimes known as a completion fee, is charged only when the mortgage funds are released.
If you decide to move to another lender’s new rates, and have already paid for your valuation, you will not get the money back.
David Hollingworth, of broker L&C Mortgages, says: ‘Rates are so low because banks are competing furiously to attract lots of new customers.
‘But they cannot afford to just chase new business, so they are trying to hold onto existing borrowers by getting them to commit to a new deal before they have thought about shopping around.’
Mr Hollingworth says that while your bank may offer you a lower rate than you are currently on, you should not assume it is the cheapest on the market.
For example, Santander is offering a two-year fixed rate remortgage deal with a free valuation and £250 cashback for borrowers with a 40 per cent deposit.
At 1.39 per cent on a loan of £150,000, you would pay £592 a month.
Over two years, with an arrangement fee of £999, you would repay £15,207.
But Mr Hollingworth says that before locking into a new deal, you should also consider if you will need to move house before your new fixed term expires.
This could result in you paying an exit fee to be released from the deal if you are unable to ‘port’ your existing mortgage to your new house.
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