Why savvy switchers are remortgaging now!

After bottoming out in August remortgaging is back on the up. We show you the best deals!

Existing mortgage borrowers have been faced with a no-brainer in the last couple of years. Do nothing at the end of your deal and automatically revert to your lender’s standard variable rate -- which are currently historically low -- or search the market for a new deal that could be more expensive, and you will probably have to pay a fee for.

It’s not surprising that remortgage levels fell off a cliff as a result of this choice and, in August, remortgaging actually plummeted to a 10-year low, according to the Council of Mortgage Lenders.

But now it’s back, and smart borrowers are starting to realise that now could be the very best time to switch your mortgage.

On the up

According to the CML remortgaging started to rise in September following the previous month’s lull, and other measures note a similar trend. Mortgage brokerage John Charcol saw a 43% rise in remortgage enquiries in October, and Connells surveyors saw remortgaging number leap 78% during the same month.

Borrowers are clearly beginning to come to the conclusion that sitting on their lender’s SVR may have served them well up to now, but might not be such a good idea going forward.

And there are three massive reasons that now is a good time to switch:

1.    Rising rates

Borrowers are beginning to get the jitters about rising interest rates. After all, if you are sitting on an SVR, or a reversionary tracker rate, you are fully exposed to a rise in the Bank of England’s Base Rate. This means that when it is hiked, your mortgage repayments are likely to go up (they definitely will if you are on a tracker, and probably will if you are on SVR). And there is no limit as to how high rates could rise.

Nobody knows exactly when rates will rise and the Governor of the Bank of England Mervyn King, intimated last week that they will stay low for the time being. However the consensus of most economists is that rates will begin to go up at some point in 2011.

Of course, the financial markets and mortgage lenders take into account future rate movements when they price their products, so the minute a rate rise is on the cards, fixed rate deals, which hit an all-time low in September, are bound to rise.

Also, remember it can take a month or more to arrange your remortgage, so it could pay to get in now.

1.    SVRs have risen

The lack of motivation to remortgage stemmed from the fact that interest rates, and specifically lenders’ SVRs fell to such low levels. Indeed, some lenders ‘revert to’ rates are still extremely competitive. Nationwide borrowers for example benefit from a reversionary rate of 2.5%, so it’s pretty easy to see why the idea of spending the time and money remortgaging isn’t that appealing.

But it is not the case for all existing borrowers that sitting on your lender’s SVR is your cheapest option. Kent Reliance borrowers revert to an SVR of 6.08%, for example, so it is almost definitely worth their customers refinancing to a better deal, and some lenders, including Skipton Building Society, have hiked their SVR in the last year.

In fact, the current average SVR has risen to 4.75% compared to 4.61% in June 2009. At this level many borrowers will now be able to find a better deal by switching, especially those with plenty of equity in their properties.

And this leads nicely onto the final motivator for switching -- cheap deals.

2.    New deals are cheaper

When SVRs hit their low point, new mortgage deals were not particularly attractive, as lenders frankly didn’t have much to lend. The mortgage market today is much more competitive (though by no means back to pre-crunch levels) and the new deals available are very cheap indeed.

The bottom line is that if you can find a new deal that is cheaper than your current SVR or long-term tracker rate, it’s probably a good idea to consider switching. Remember that it is always important to factor in any switching costs in addition to the monthly repayments alone, such as an arrangement fee, and legal and valuation fees if you have to pay them.

But the current market offers some absolutely stonking remortgage deals and many come with free legal and valuation fees to help switchers.

With trackers at under 2%, 2-year fixes under 2.6% and 5-year fixes under 3.7% it is little wonder that more borrowers are realising that now might just be the ideal time to bag a super-low mortgage deal before rates rise.

Below are some of the best:

15 great variable deals

20 fantastic fixed rates

Use lovemoney.com's innovative new mortgage tool now to find the best mortgage for you online

Get help from lovemoney.com

If you need help getting the best mortgage use our resources.

First, adopt this goal: Cut the cost of your mortgage and pay it off early

Next, watch this video: Getting through the mortgage maze

Then, why not have a wander over to Q&A and ask other lovemoney.com members for hints and tips about what worked best for them?

At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email mortgages@lovemoney.com for more help.

This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article. 

Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.

Your home or property may be repossessed if you do not keep up repayments on your mortgage.