What do current mortgage rates mean if your fixed-rate is expiring? Top tips ahead of interest rates meeting

Lenders have been pulling deals at short notice as rates have been ballooning to 15-year highs off the back of worse-than-expected inflation data. Whilst inflation is now well-below its peak of 11.1% last autumn, it is failing to disappear as quickly as economists had forecast.

Falling inflation means our wages are much more likely to keep up with price rises, but the bad news has been hidden in the detail. Markets have been spooked by the fact that core inflation actually increased in May - a sign that it is proving to be sticky.

The fact that we are still talking about this news almost a month on shows how deep its economic ramifications have been. And worse appears to be in the offing, even after the next Bank of England interest rates decision. Analysis by the Resolution Foundation has estimated repayments are likely to rise by an average of £2,900 a year (£242 a month) for households remortgaging in 2024.

So, if you’re coming up for a remortgage soon, what should you do? Here is a quick plan of action.

1. Consider your options

There are three main options at your disposal if you’re coming to the end of your mortgage deal: fix again, go for a tracker or drop onto a standard variable rate (SVR).

With forecasts now envisaging that the Bank of England will hike interest rates to 4.75% this week before implementing further increases up to a high of 6% over the next 12 months, and with inflation proving to be much stickier than expected, the consensus is that higher rates will be here to stay until at least late-2024, possibly until 2025.

In my view, this thinking rules out an SVR or a tracker. SVRs are mostly running at a rate above 7.5% - well above the price of a fix. Meanwhile, trackers look set to remain higher for longer (most will already be above 5.5%) given they follow the movements of the Bank of England rate and add money on top.

The advantage of both is that you can exit early without a fee, potentially opening up cheaper fixes if/when everything calms down in the mortgage market. You also may get access to lower rates much more quickly than you would on a fix - something we shouldn’t rule out entirely from happening soon given better-than-expected inflation data is a possibility at some stage in 2023. But both products are a major gamble at the moment given the economic turbulence we’re seeing.

However, fixes are climbing - and fast. So, if you want to go for one, you must act quickly. I would recommend talking to a mortgage broker about it as soon as you possibly can.

2. Can you overpay on your current rate?

If you’re coming to the end of a fixed deal, the chances are that you signed up for it before the Bank of England began to hike interest rates. Therefore, the deal you’re on is likely to have a much lower rate than what’s currently available on the market.

In this situation, it might be worth overpaying your mortgage up to the limit set out in the contract you have with your lender. Not only will this reduce the total amount of mortgage you have left to pay on the cheap, it could also mean you qualify for a better remortgaging rate.

Borrowing rates tend to get cheaper the closer you get to paying your mortgage off. Lenders apply different rates to different loan-to-value ratio (LTV) bands. So, if you overpay to the extent you can drop into a lower band, you’ll save yourself a decent wodge of money come remortgaging time.

Before you make a decision, consider whether or not you have the disposable income and/or savings in place to overpay - and if so, by how much. It’s not worth chasing it and falling into debt (especially at today’s interest rates) if the money simply isn’t there for you to viably go for it.

3. Contact a mortgage broker

Now more than ever is the time to talk to a mortgage broker. Their expertise is worth its weight in gold and their contacts mean they can often access better deals than those available on the open market.

I can vouch for them from personal experience. When I bought my house, my advisor could see the direction of travel in the market and held my application back by a week. Her actions knocked off several basis percentage points saving me a small - but worthwhile - amount of money.

4. Chat to your lender

If you’re looking at the current situation and can’t envisage how you’re going to be able to afford to pay for your mortgage after your current deal expires, chat to your lender.

Not only can they potentially grant you an exclusive deal that may be below current market rates, they also have the power to grant you a mortgage holiday (i.e. breathing space from your monthly repayments for a short or medium-term period) or they can adjust your monthly repayments. It may be worth chatting to them in conjunction with a mortgage broker to ensure you are making the best decision for your financial circumstances.