With Brexit uncertainty continuing, the number of homeowners deciding to lock in fixed-rate remortgage deals is on the rise. But what does Brexit really mean for your mortgage, and how can you gain financial stability in this uncertain time?
Brexit could affect the base rate, which affects mortgage rates
When the Bank of England base rate changes, mortgage rates tend to change as well.
The base rate is currently 0.75%, and has been since 2 August 2018. However, no one really knows what’s going to happen to the base rate after Brexit.
The Monetary Policy Committee, who set the base rate, have previously said they want to increase rates. But in their last meeting on 31st July, they voted to keep the base rate at 0.75%. Their next meeting is 7th November, and what they will do will depend on Brexit.
We can expect the Bank of England to lower its interest rate, particularly in a hard Brexit scenario, as the risk of a UK recession would heighten. This would bring mortgage rates down.
It’s also possible that the Bank of England could choose to increase interest rates in response to the devaluing of the pound, in an attempt to curb inflation. This would mean mortgage rates increase.
This economic uncertainty could be why many people are choosing to lock in a fixed-rate mortgage deal now. In fact, 9 out of 10 mortgage customers now choose a fixed-rate deal, with 46% of customers opting for a fixed period of 5 years.
Fixed-rate mortgage deals can offer greater stability in an uncertain time
Fixed-rate mortgage deals offer just that - a locked interest rate for a period of time, usually between 2 and 5 years. This means you know what your monthly payments will be in the longer term so you can plan your finances accordingly.
Recently, there have been an increasing number of longer term mortgages on the market, with Virgin Money even offering a ‘Brexit proof’ 15 year fixed rate. These longer term fixed mortgages have become increasingly competitive, meaning better prices for consumers.
While these products offer greater stability, they can be expensive to get out of as they tend to have higher early repayment charges.
There’s currently a great choice of mortgage deals – these could disappear after Brexit
Consumers now have more choice of mortgage products than ever before. As of July 2018, over 5,035 residential mortgage deals became available on the market, the highest number since 2008.
But there’s no guarantee this will continue post-Brexit, particularly if the UK goes into recession. Lenders could start to restrict their lending as they did in 2008 during the financial crisis. If this happens, you might find it harder to remortgage.
If house prices drop, so might the number of good mortgage rates
A no-deal Brexit could see property prices dramatically decline, according to a recent study by KPMG. In their report, they predict that a hard Brexit could see national house prices fall by between 5.4% and 7.5% in 2020. London and Northern Ireland are predicted to be the worst affected, with a decline of 7.5% and 7% respectively.
If your property’s value drops, this could affect your Loan-to-Value (LTV) ratio. Your LTV is calculated by dividing your outstanding mortgage amount by the value of your property. Mortgage deals are often only available to people within a certain LTV band. For example, someone with an LTV below 60% will likely qualify for the most attractive rates.
A decline in the value of your property could change your LTV band and could mean you no longer qualify for the best rates.
If your LTV is currently at the bottom of an LTV band, then it might be worth considering remortgaging sooner rather than later so you can lock in a good deal.
Approaching the end of your current mortgage deal? See if you can reserve a new mortgage deal
Many lenders will allow you to reserve a new mortgage rate 3-6 months in advance of your remortgage date.
Nationwide will allow you to lock into a new rate 6 months in advance of your switch date if you’re a new or existing borrower. Santander allows its current mortgage customers to move to a new deal up to 6 months before their current rate has expired, without paying a penalty fee for switching early.
If you’re a Nationwide or Santander customer, you can compare deals from your current lender to the rest of the market on ClearScore.