The benefits of re-mortgaging

• Half of borrowers (50 per cent) are on a deal such as a fixed or tracker rate.
• 35 per cent of people coming to the end of their mortgage deal don’t intend to re-mortgage.
• 13 per cent of borrowers do not know what their existing interest rate is.
• Mortgage repayments could increase by as much as £148 per month.

Research from Abbey has revealed that half of all borrowers are on a short or medium term mortgage deal, such as a two-year fixed rate. Of these, over a third (35 per cent) don’t intend to re-mortgage at all when their current rate expires, and will not be actively searching out the next best mortgage deal.

Abbey estimates that 800,000 people in the UK have come to the end or are about to come to the end of their cheap fixed rate deal taken out two years ago. If, as the Abbey figures suggest, a third of those borrowers do not re-mortgage and instead move onto a Standard Variable Rate, 280,000 people could be wasting £20 million in mortgage payments each month.

As well as not being on the ball when it comes to re-mortgaging, many borrowers don’t even know what deal they are on or when it ends. Thirteen per cent of borrowers do not know what their existing interest rate is and a further 41 per cent have only ‘some idea’. In addition, only one in three borrowers (30 per cent) with mortgage deals know when their deal expires. Seven per cent of people are completely unaware when their existing deal ends, 12 per cent only know the year that it ends and 16 per cent know to within a few months.

This lack of knowledge on rates and re-mortgaging could mean that many borrowers have not noticed that mortgage rates have risen by an average of 1.29 per cent in the past two years.

Current average mortgage rates (across all types of rate) are 5.50 per cent, compared with 4.21 per cent in September 2003. Average fixed rates have also increased to 5.31 per cent from 4.00 per cent.

If a borrower has had a fixed rate of 4.00 per cent for the past two years and reverts to the average SVR of 6.5 per cent, monthly payments will increase by £148. Over a 12-month period this is a total of £1776.

Paul Smith from Provident Solutions recommends all clients consider re-mortgaging as there current deal nears the end of its term. To put it into context, interest rates are still fairly low compared with the 1990s. However, the overall trend since autumn 2003 was upward until the Bank of England cut the Base Rate last month. Shopping around is crucial because rates and fees vary greatly between lenders and can change quickly. It is really important that borrowers find a deal that suits their individual needs, re-mortgaging is easy when your use a professional independent mortgage broker to do and could result in a significant monthly saving.

Many people leave it to the last minute, or even later, before they actually re-mortgage. The Abbey survey showed that three per cent don’t re-mortgage until a week after their existing deal expires. Nine per cent will drag their heels for between a week and four weeks and a further eight per cent will not re-mortgage for between one month and three months after.

Abbey calculates that each month a borrower stays on an industry average SVR rather than re-mortgaging to a better rate can cost up to £148.

For more information about Provident Solutions Independent Mortgage Review service please call us on 0116 2592371.