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COVID update; can you remortgage or product transfer, during lockdown?

Covid-19 has had a massive impact on the mortgage marketplace, with some lenders withdrawing altogether and thousands of products withdrawn from sale. The outlook is not as gloomy as you may imagine if you need to remortgage.

If your current deal is about to end, ends later this year, or if you want to

 remortgage to consolidate commitments and reorganise your finances, what options are there, and what should you do?

If your mortgage deal is ending soon

Firstly, if your current deal ends imminently, whilst there has been a reduction in the number of lenders and products, many of those withdrawn are for house purchases or higher-risk lending.

Most lenders continue to offer product-transfer deals for existing customers; many still offer remortgage deals for new customers, and we can arrange these for you without any advice fees. So we can typically advise you on options from the whole of the market and your current lender simultaneously.

If your income has fallen, this might affect your ability to change lenders but would not prevent you from transferring deals with your existing lender.

If your mortgage deal is ending within the next 6-months

For anyone whose existing deal ends by late Autumn, now is an ideal time to think about remortgaging.

Several lenders’ remortgage deals are valid for six months, so you can apply well in advance, taking advantage of the low current rates and arranging everything ready to switch over as soon as the current mortgage deal expires.

There are several reasons why doing this now could be wise. Firstly, although lenders have not passed on the full rate reduction made by the Bank of England into new fixed-rate mortgage deals, there is a good chance that this never happens.

With vast financial losses in every industry, it is difficult to imagine lenders vying to cut into vital profit margins when rates are already at all-time lows.

Conversely, we could see a reduction in house prices or even lenders pulling out of the market entirely, creating a situation where you were better off applying today than in several months.

No one has a crystal ball to predict how the market will progress over the year, but the likelihood of rates getting significantly better than today seems dim.

Consolidating credit commitments into your mortgage

This is where the remortgage market has already shrunk significantly. So, if you want to trim down your outgoings and reduce your typical monthly commitments, it may be wise to act now rather than wait. 

Be aware, though, that consolidating credit commitments into a mortgage often presents poor value for money. And may be more expensive than alternative options, like balance-transfer deals or converting credit card debts into a personal loan.

It is also important to note that you often convert unsecured credit commitments into one secured against your home. That means you stand to lose your most precious asset if you default, where previously, there may have been no risk of this at all.

We can help you understand whether a debt-consolidation remortgage is the correct solution for you. 

Changing your mortgage term

You do not necessarily have to wait to remortgage to alter your mortgage term and, therefore, your monthly payments (for anyone on a repayment loan).

If this is something you want to look at, you can speak to your lender, and you may be able to do this midway through an existing deal, even if you have early repayment penalties.

Again, you can possibly change the term when you remortgage or product transfer, and if you want to reduce your outgoings in this way, get in touch to discuss your options.

If you are in financial difficulty

If you are experiencing difficulty making payments, your first port of call should be your existing lender to discuss options to prevent you from getting into arrears, including the government’s payment holiday scheme.

If there is a risk of you defaulting on obligations like a credit card, loan, hire purchase or other non-secured credit commitments, then consolidating these into your mortgage is a potential solution. 

But this increases the risk of losing your home by converting unsecured commitments into secured debt.

We can help you get an understanding of whether consolidating commitments is a solution that could be viable for you. 

But you should consider speaking to stepchange.org & the Citizens Advice Bureau about the implications of getting into arrears on either type of commitment and other options that may be available, such as an IVA.

Is a 10-year fixed-rate mortgage a good idea & should you get one?

10-year fixed-rate mortgages have been reducing significantly in cost, and for the first time in the UK, it’s now possible to get a pretty competitive rate fixed for ten years. But the big question is should you get one?

Question 1: Is a fixed rate even appropriate for you?

Forget ten years. Should you even have a fixed-rate mortgage?

Lots of people get caught out by significant early repayment penalties due to not properly considering the question of their long-term plans before buying.

Will you be moving home, repaying large balances early, hoping to raise significant additional finance from the property or could you be eligible for better deals in the short term if your circumstances improve?

Before considering a fixed-rate mortgage, look at our guide to fixed-rate products and see how they work versus other rates. Pay real consideration to whether the points above could leave you paying redemption penalties of many thousands of pounds.

You should speak to an independent mortgage broker like us as well.

Question 2: Will fixing for ten years be competitive long term?

If you had a crystal ball, you could answer this question, but no one can see into the future.

When a lender prices a product, it’s either based on the cost of borrowing that money from another bank or investor and turning it into mortgages, or on the expected interest rate they will pay to their depositors over that time.

So the simple fact is that a fixed-rate mortgage will be priced based on the expectations of what will happen to interest rates over the term & the lender will expect to profit.

That means the current glut of competitive long-term fixed deals indicates that the banks expect a prolonged period of relatively low-interest rates in the UK well into the future.

So like odds given by bookies, most banks will not expect average interest rates over the fixed period to be higher than the rate they are offering you. So you are in effect betting against the bank, but they have been known to be quite spectacularly wrong in the past.

The smaller your mortgage though, and the shorter the remaining term (for someone on a repayment or capital and interest mortgage) the less differences in rate will impact the long-term cost.

Because of this, for each loan, there will come a point as the remaining term decreases when small differences in rates are outweighed by the repeated fees involved in refinancing a mortgage, and changing products regularly offers poor value for money.

This is very case-specific, but once your mortgage reaches that point the potential downsides of long-term fixes may become insignificant.

Question 3: So, who should take a 10-year fixed-rate mortgage?

If you are concerned about increases in costs, have no circumstances that might better suit variable rates, and are sure that the early repayment penalties won’t be likely to cause an issue, then you need to decide whether you feel it’s worthwhile gambling long term and risk paying more than you might need to, or whether to take a short-term product in the hope that you can secure another competitive rate again in a few years.

This decision is mainly going to come down to the margin between short-term fixed rates and long term ones. Also, the probability that changes to your circumstances make better deals available to you in the short term (such as better income making more competitive lenders available, or works to a property decreasing your loan to value), and whether you feel the additional cost is good value for the extra security.

A mortgage advisor such as ourselves will discuss your circumstances with you and give guidance on whether a fixed product is more appropriate for you. If a fixed rate is the best option for you, but it comes down purely to a decision between long and short-term deals then this is very much a decision best made by the customer, but at least we can present you with the best options available over the different periods so you can make a more informed decision between them.

If you’d like to know what the best deals available to you both in the short and long term could be then complete our enquiry form and an advisor will contact you, to discuss your options and provide you with advice.

Q&A; how offset mortgages work; the basics of offsetting explained

An offset mortgage has a linked savings or current account, and rather than receiving interest on money paid into that account; you don’t pay interest on the same balance of your mortgage.

You can typically set an offset facility to work in one of two ways. It can either; act as an overpayment facility reducing your mortgage term or reducing your monthly payment.

The main benefit of using an offset account against overpaying your mortgage is that you can readily access the funds in the future without having to refinance; although this would affect your payments or term.

You can also use it to borrow money in advance and only pay for it when you take it out of the offset account; however, you must consider how borrowing extra money will affect interest rates, loan-to-value and arrangement fees.

Offset isn’t technically a type of product, so you can still get all the usual types of rates with an offset facility such as fixed, discount and tracker deals, for example.

The main thing with any mortgage is to make sure any additional cost you pay to get this option justifies the benefits you receive. That’s something we can consider for you in the advice process. You can get more information or to get expert advice on offset here.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT. WE TYPICALLY CHARGE AN ADVICE FEE OF £299 PAID UPON FULL MORTGAGE OFFER. SOME BUY TO LET AND COMMERCIAL LOANS ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY
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