Remortgage now or regret it!

aerial shot of housesThe last month has seen a raft of lenders increase their rates on new mortgage products, including fixed deals and trackers.

The move has prompted experts to warn that the window of opportunity for borrowers to switch to a cheaper deal is closing fast.Halifax hiked some of its deals by 0.3% last week, which amounts to about £300 a year on a typical £150,000 mortgage.

And it isn't alone. ING Direct, Norwich & Peterborough, First Direct, Nottingham Building Society and Yorkshire Building Society have all repriced their mortgage ranges at higher rates in the last month.
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Double trouble
This is obviously bad news for borrowers, but it's a particular problem in light of the fact that lenders have also been increasing their long-term reversionary rates, known as Standard Variable Rates (SVRs) in the last few months.

These are the rates that you automatically revert to at the end of a fixed or discounted deal for example, and they had been extremely low for the last three years, as a result of the historically low Base Rate. As a result, many borrowers have been sitting pretty on them rather than switching.

Despite Base Rate not budging, lenders have started to increase their SVRs in 2012, with Halifax, Bank of Ireland, the Cooperative Bank, Yorkshire and Clydesdale Banks, and RBS/NatWest's One Account all recent offenders.

What this means is that over a million borrowers on SVR have seen their existing pay rate increase, prompting them to think about remortgaging to a new deal. But at the same time those new deals are also getting more expensive.

Why all the hikes?
The Eurozone crisis is having a major impact on not only the wider British economy, but specifically on our mortgage lenders.

Lenders are finding it extremely tough – and extremely expensive - to borrow money on the wholesale markets.

Mark Harris, chief executive of broker SPF Private Clients, explains: "The rising cost of wholesale funding, in part down to problems in the Eurozone, is behind the recent hikes in mortgage rates by lenders. As problems continue to brew, it is likely that we have seen the last of the cheap mortgage deals for now, with mortgage rates expected to continue to climb, even though Base Rate may remain at 0.5 per cent."

They don't have the means to lend cheaply, and frankly many lenders don't have the appetite, with more than one major lender admitting it wants to reduce its market share.

David Hollingworth, spokesperson for advisers London & Country Mortgages, adds that there is also a domino effect to the price rises: "As more lenders price upwards it forces others to do the same, even if only to manage the volume of business coming their way."

In this context you can see why there is no major incentive for lenders to offer market-leading products – it would attract too much business.

The other reason they are tweaking rates upwards is pure and simply that they want to increase their profit. By raising SVRs lenders have created a demand for new mortgages as people rush to switch, and then they have increased those prices too.

Rates go up if you stay put, and rates go up if you switch. So, what should you do?

Remortgage now
For most borrowers on SVR, it's still worth switching to a new mortgage deal.

If you are one of the million plus that have recently been affected by your lender increasing your SVR, you will have no doubt already thought about remortgaging. After all, there are still plenty of mortgages at rates significantly lower than most SVRs, so it can make sense to move.

The only exceptions are those with very little equity, who may find that they are actually better off where they are, even if their lender has increased their rate.

There are also a few lucky borrowers on particularly low SVRs of 2.5%, including some borrowers of Nationwide, Lloyds TSB and Cheltenham & Gloucester.

For other borrowers on SVR, with decent equity, you are likely to save by switching. Equally, if you are on a tight budget and need to know that your monthly repayments cannot spiral, moving to a fixed rate could be a good option whether or not you can save.

Harris sums it up: "Borrowers on their lender's SVR should consider switching to a fixed rate if they need security, and sooner rather than later. Those with sizeable amounts of equity will have the pick of the rates, while those with 15% equity or less may struggle to remortgage."

Move quickly

With new mortgage deals also getting steadily more expensive, you need to hurry, suggests Hollingworth. "Although rates are not currently rocketing many lenders are regularly tweaking rates by 0.20-0.30% and there's no sign that is likely to change.

"Those borrowers considering their options would therefore be better to secure a deal now rather than risk its withdrawal and replacement at a higher rate. There are still competitive rates available (eg some 5 year fixes below 4%) and so there's the opportunity to not only save on monthly costs but also to put some budgeting certainty in place by fixing the rate."

New mortgage deals may be higher than they were at the start of the year, but they could go up further, as could your existing payrate if you are on your lender's SVR.

Chances are you could save money now by remortgaging, and you could regret it if you don't, because you may not find such a tempting choice of deals available in the coming months.

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