Last week, the Bank of England hiked interest rates for the tenth time in a row, putting even more pressure on households amid the ongoing cost of living crisis. Decision makers on the Bank's Monetary Policy Committee (MPC) opted to hike the base rate from 3.5 per cent to 4 per cent, to help bring double-digit inflation under control.
The increase is expected to impact millions of homeowners. If you have a tracker mortgage - the type that directly follows the base rate - you can expect your interest payments to jump pretty soon and if you have a fixed-term mortgage, you will not start paying more interest until you have to remortgage when your current deal runs out.
However, in a special edition of The Martin Lewis Money Show Live, the financial expert shared a simple guide to help those on a fixed mortgage “lock in” the best deal, even if your renewal is months away.
The consumer champion shared the practicals of getting a mortgage deal - for people remortgaging and trying to get a new deal on the same property - after one viewer for in touch with the ITV show to ask Martin whether he should dip into savings to pay his mortgage as his current fix ends in a couple of months.
Stephen wrote: “We may have to dip into our £28,000 savings, which is meant to be for our kid's education, to pay for our rise in mortgage. I am getting really worried now - my 5 year fix rate is coming to an end in April. I don't know enough about mortgages so could do with some advice - what are my options?”
Martin explained that the first thing you have to do is gather your mortgage information such as:
- your rate
- the type of mortgage you have
- when your deal ends
- the term - does it have 25 or 30 years left?
- are there any penalties for switching a deal - if there are, Martin said it may well end your chances of moving and you might have to stick with it
Martin said: “The most important thing everyone needs to get about mortgages is the Loan To Value (LTV), this is the proportion of your home’s current value that you’re borrowing.
“For example, if the home is worth £100,000, you’ve got a £10,000 deposit as a first-time buyer or £10,000 equity, therefore you’re borrowing £90,000 of £100,000 - 90 per cent. The lower the LTV the better.
“The problem with current value is that as house prices go down, your Loan To Value goes up. Rates get cheaper at 90 per cent, 80 per cent, 75 per cent until 60 per cent - remember, lower LTV is better.”
In response to Stephen’s query and anyone else in the same position, he said: ‘If using some of your savings could get you over the LTV boundary that may well cut the cost of your mortgage and more than pay itself back and that’s worth thinking about.”
The founder of MoneySavingExpert.com then explained that the first thing you need to do is find your existing lender’s cheapest deal which is called a ‘product transfer’ which he said “used to be poor, but got much better in recent years”.
He also explained: “Existing lenders can forego affordability checks, many have lower fees and they’re becoming a lot more competitive towards their existing customers.
“Crucially, many lenders will let existing customers lock in deals three to six months ahead.”
Martin went on: “I call that an insurance deal, so let’s say you can get a deal now.
“You lock it in - you may have to pay a few hundred quid to do so - and if rates get worse you’ve locked in a cheap deal and if rates get better, you can lose the few hundred quid and move to a new cheaper deal because you can cancel it.”
And no surprises, his advice works. Ian also contacted the programme to share his success following Martin’s ‘mortgage need-to-knows’ in 2021.
Ian wrote: “I followed your advice on 1st Dec 21, I fixed 5 months early and secured a 5 yr fixed at 1.29%. SO GLAD I DID. If I can continue to overpay, I'll be clear before the next time it needs renewing too. Wish me luck. THANKS TO YOU AND YOUR TEAM!”
Despite Ian’s success, Martin warned viewers they will not get a cheap mortgage on the current market.
He said: “You’re not going to get a 1.29 per cent mortgage now, but the concept of locking in ahead of time, that is a good proof of concept and in his case it worked.”
He also advised using a comparison site to benchmark the market’s cheapest deals so that you’ll know if it’s worth going elsewhere or sticking with your current lender, but warned that lower rates might have a higher fee, so always check the small print before committing to anything.
HSBC UK has reduced a five-year fixed-rate mortgage deal for borrowers with a 40 per cent deposit to 3.99 per cent - the deal has a £999 fee.
It is the first time since September 2022 that a five-year fixed-rate mortgage has been offered by HSBC at a rate below 4 per cent. It is only available to homeowners who are remortgaging or those who are switching rates (existing customers rolling off an old deal and on to a new one with HSBC).
The move is part of a wider range of mortgage rate cuts made by HSBC UK on Tuesday.
According to figures from financial information website Moneyfacts.co.uk, the average five-year fixed-rate mortgage on the market at the start of January was 5.63 per cent and by the start of February it had fallen to 5.20 per cent.
You can catch up with The Martin Lewis TV Show Live on the STV Player.
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