Everything you need to know about re-mortgaging in 2023

19th July 2023

The mortgage market is experiencing some stability, but it remains volatile with average rates for fixed-term deals still increasing. This rise is mainly attributed to stubbornly-high “core inflation” figures that emerged in April and continued to rise in May. Although inflation eased slightly in June, there is uncertainty whether this will calm mortgage lenders, especially with the Bank of England likely to raise the Bank Rate at its upcoming meeting.

Around 2.5 million homeowners are approaching the end of fixed-rate mortgage deals in 2023 and 2024, and many will be forced to refinance at rates double what they were used to paying.

Currently, the average two-year fixed mortgage stands at 6.81%, a significant jump compared to July 2021 when average rates were below 3%.

The question arises whether mortgage rates will further rise if the Bank Rate increases again. The Bank of England has raised its central interest rate (Bank Rate) 13 times since December 2021, reaching 5% in June. Last year, lenders passed on most Bank Rate increases to mortgage customers, but other market factors like swap rates also influence fixed-rate pricing. Although recent mortgage rate increases were linked to high core inflation, the rate has slightly decreased in June, indicating that the Bank Rate’s peak might be lower than expected, potentially leading to falling mortgage rates.

For those seeking the cheapest interest rates, Progressive Building Society offers a two-year fix at 5.69%, while Cumberland Building Society provides a five-year fix at 5.28%. However, borrowers should not focus solely on the headline rate but consider overall costs, including fees.

Experts suggest fixing rates for two years to avoid being locked into inflated rates for an extended period. Mortgage rates are predicted to fall by 2025, making it beneficial to plan for cheaper repayments. However, the decision to fix the mortgage term will depend on individual financial circumstances.

Borrowers with more equity in their properties are seen as less risky by lenders, increasing the chances of obtaining lower interest rates. A lower loan-to-value ratio and a larger deposit can unlock lower interest rates. Mortgage overpayment calculators can help borrowers assess whether overpaying the mortgage or saving the extra cash is more beneficial.

Households with substantial cash reserves can access lower rates through offset mortgages, where borrowers use their savings to reduce their loan costs. This option becomes more attractive as tax thresholds shrink, and savings rates rise.

Regarding interest-only mortgages, homeowners struggling to pay their mortgage bills can switch to interest-only deals without a formal repayment plan. However, after the temporary interest-free period, homeowners must have a credible repayment plan to switch to a permanent interest-only deal.

Are you considering remortgaging this year? Speak to our Senior Sales Consultant, Adam Coffin, to discuss your current situation and how Coapt can protect you and your investment.