Mortgages: switch or stay put?

Around one million householders will be confronted with an increase in their mortgage bill this summer, according to The Guild of Professional Estate Agents. Indeed, various major lenders have already announced a rise in rates while financial information service Moneyfacts observes that the standard variable rate (SVR) for existing borrowers ranges from 2.5% to 6.08% and with rates starting to rise, fixing payments is again on borrowers’ radar. Here is advice from The Guild about what to consider when deciding on a fixed or variable rate mortgage:

1) Remortgaging or switching

Those who see their SVR rising and expect it to continue in the near future may decide to remortgage with the same lender or a rival. Most start by discussing options with their current provider and then talk to an independent broker to compare this with the rest of the market. However, there are normally fees involved which should be included in your calculations. Also check if the new lender has ‘exit fees’ before you sign up to a new deal. If you are in negative equity you may find that your choice of new deals is quite limited and you may be obliged to stay with your current provider.

Marcus Whewell, CEO of The Guild of Professional Estate Agents says: “To make the process as simple and as stress-free as possible for the homeowner, we would suggest to always seek proper advice from an ISA accredited provider before making a final decision, whatever your position.”

2) Paying early

Many people have directed any extra cash into paying off their mortgage faster. One advantage of being on an SVR is that there are usually no charges or penalties for paying more money each month and so reducing the capital outstanding (an exception may be those on a discounted rate).

3) Staying put

Hundreds of thousands around the country are on SVR rates with a range of lenders. “The recent rises from The Halifax and Bank Of Ireland are seen as ‘catching-up’ with other providers,” says The Guild, “and there is a feel that general rates may stay low for some time, as this is a very competitive market. Yet the state of the UK economy and the future of the Euro zone is far from certain, and therefore no-one can be certain about when rates might increase.”

It’s also worth bearing in mind the effect of the weather on mortgages. “The growing threat of flooding around England and Wales is a reminder of the growing insurance risk the UK faces,” says Richard Hinton, business development director of property search firm SearchFlow. “Our research shows £214bn worth of property is at risk from flood in this country, much of which could become uninsurable as early as this summer. The government’s agreement with the ABI (Association of British insurers) which ensures universal flood cover is set to expire in June next year, meaning annual renewals for cover beyond that date may become unobtainable in only a few weeks’ time.

“The problem is that years of underinvestment in flood defences means insurers cannot guarantee the open market can maintain universal flood cover. Those who cannot insure their properties face breaching their mortgage agreements and rapid falls in value of their properties. Anyone today who is buying a house should make certain their conveyancer undertakes the necessary flood checks to protect their interests”.
Useful web sites for more information

• Independent Property Search Engine
• Independent House & Home section

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