Hit by mortgage hikes? Read our essential guide to remortgaging

Updated: 
mortgage statementIf you are one of over a million borrowers hit by mortgage hikes this week you are probably feeling pretty disgruntled. After all, you need to find an extra chunk of money every month to meet your mortgage payments.

But you don't have to accept the higher payments as a done deal. Many borrowers will be able to switch their homeloan, and save.
From Tuesday customers with Halifax, Yorkshire Bank, Clydesdale Bank and The Co-operative Bank have seen an increase in their Standard Variable Rates (SVRs), as we reported in One million face mortgage rate rise.

Halifax's SVR has risen from 3.49% to 3.99% - that's a monthly repayment jump from £750 to £791, based on a £150,000 repayment mortgage (over 25 years).


According to Which? this week's hikes will increase the annual repayments of the affected borrowers by a total £300m.

But what can you do about it if you are one of them? After all, the decision has been made, hasn't it?

Vote with your feet
If you don't like your mortgage, switch it.

The borrowers affected by this week's rises are on their lender's SVR, which means they won't be tied into their mortgage with Early Repayment Charges.

You can either remortgage to another deal with your existing lender, or to a new one, depending on what you prefer and what is accessible to you.

Ask your lender what deals are available to you if you choose to stay with them. For example, The Co-operative Bank has put a range of mortgage options in place for its borrowers to try to minimise the impact of the increase.

Of course, remortgaging will be more suitable for some than others, because your specific financial circumstances make a huge difference to which deals you are able to access.

All about the equity
The key issue is the level of equity you have in your home – the more you have, the more likely it is you can save by switching to a new mortgage.

If you have more than 25% equity in your property you will be able to find a cheaper rate than the SVRs of any of the lenders that have increased rates this week. In fact, there are tracker rates from as low as 2.79% on the market.

If you have 20% or even 15% equity you may still be able to save by switching, depending on your income and other financial circumstances.

So what should you do next?

How to remortgage

Knowledge is power: Your first step to getting a new mortgage is to work out exactly where you are with your existing deal. Ask your lender for your existing balance and details of any costs of leaving them – even if you don't have Early Repayment Charges there is likely to be an exit fee of a couple of hundred pounds.

Work out your LTV: Then you need to work out your loan-to-value (LTV) ratio, which is what will determine the rate you can access on a new deal. This figure is your outstanding loan as a proportion of your property's current value. So if you owe £100,000 on a £200,000 property you have a LTV ratio of 50%. That is very low and the lower the better as lenders keep their best rates for those with lots of equity.

If you owe £180,000 on a house worth £200,000 your LTV will be 90%, which is high, and your choice of deals will be much more limited – the rates will also be higher.

Shop around: Once you know your LTV you can start to shop around for deals. If you want to do the research yourself, the internet helps make light work of it, but if you are using comparison sites, remember they may not list every deal on the market.

Get advice: Alternatively you could decide to use a mortgage broker. They will search the market for you and give you personal advice specific to your individual circumstances. An extra bonus is that they do a lot of the legwork for you, such as chasing the lender.

Fix vs variable: Decide what sort of mortgage you want – a fixed or variable rate. A fixed rate is set in stone for the duration of the deal, no matter what happens to wider interest rates, while a variable rate rises and falls in line with the Bank of England Base Rate. Variables are cheaper in the current market so are a good bet if you want to reduce your monthly repayments. But they do come with the potential to rise if the Bank of England decides to increase its Base Rate. If it is important to you to protect against rising rates, it might be worth paying the premium for a fixed rate deal.

Count the costs: When you find new deals you need to take into account all the switching costs, since you are likely to have to pay a mortgage arrangement fee for your new deal. They currently average over £1,500 according to Moneyfacts, so it's essential you factor this into your calculations to ensure that you can still save by switching, even when such fees are taken into account.

More hikes to come?
You may not have been affected by this week's hikes (or those from RBS/NatWest back in March) but there are no guarantees that more lenders will not follow suit and increase their SVRs. Indeed Bank of Ireland has already announced that its own reversionary rate will increase from the 1st of June, and then again in September, affecting a further 100,000 borrowers. It's possible that others will follow suit.

The luckiest borrowers are those of lenders who have a Base Rate guarantee written into their SVR contract. Some Nationwide, Lloyds TSB and Cheltenham & Gloucester borrowers for example currently pay a miniscule SVR of 2.5%, which is guaranteed to stay within two percentage points of Base Rate – so it's already as high as it can go.

And with Base Rate expected to stay low for the foreseeable future – probably the next couple of years – those customers are unlikely to be thinking of remortgaging at any time soon. For the rest of us, switching could be a very smart move.

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