Interesting research from Lloyds TSB shows the varying reasons we aren't remortgaging, even though we could save hundreds of pounds per year by doing so.
Lloyds has found that, while 31% would consider remortgaging for any saving at all, the average saving most require before they remortgage is a massive £171 per month.
It's curious that people shop around for car insurance to save sometimes as little as £30 per year, but we require savings of £2,050 per year before we shop around for a mortgage.
Even after non-mortgage costs (such as legal costs, valuation fees and exit fees), you might still be looking at savings of £1,500 during every year of the deal. Over one year alone, you save 50 times more than you did when you shaved £30 off your car or home insurance.
Yes, there is more work and time involved in searching for and choosing a remortgage deal, but not 50 times as much.
The question is, if £30 is important to you, why is it not important within a mortgage? Most likely you're making the mistake of thinking that anything less than £135 is a small amount compared to your overall mortgage size, rather than thinking that hundreds or thousands of pounds extra a year is an awful lot of money to you.
Another reason given for not remortgaging is people feel they're on a low enough rate already. But the Lloyds research found that half of homeowners were unaware that fixed rate mortgages have been cheaper than variable rate mortgages for over a year now.
Others aren't remortgaging because they fear associated costs would be too high, so that they won't save money overall. For some people this will certainly be the case, but I suspect that many with these worries don't spend a little time testing that hypothesis, which could cost them hundreds of pounds before next Christmas.
The riskiest reason for delay
Some of those who aren't looking to remortgage now are doing so because they want to see if mortgage rates will fall further.
I'm well placed to see the risks in relying on hopes such as these, not least because I have been collecting a database of forecasts for many years now, and I have found that experts and amateurs alike are terrible at predicting the future. What's more, we get it more severely wrong at the times we most desperately need them to be right.
If you're wrong about your forecast, the cheaper deals might disappear more quickly than you can apply for them. That might sound far-fetched, but if a sudden fear of higher rates emerges, lots of borrowers will overwhelm lenders with applications. Lenders will choose the cream from the top of the pile of forms, and then they will close the deal down, only to offer a more expensive one later to successful applicants. This could cause a wave of further applications as people panic about higher rates, which could push rates up higher and faster still.
In any event, lenders can raise their fixed rate mortgage prices overnight even if they just expect more applications to come in or costs to rise. What's more, they don't have to wait for the Bank of England to raise the base rate.
Even if you're right and rates do sink further, your delay might not pay off. Remember that, while you wait to switch, you're paying more money than with cheaper deals. The savings you make in the future have to more than make up for that cost.
Timing the bottom reliably is impossible. It makes more sense to forget that and think about what you can afford. Also, since you can't see the future, you could think of it in terms of history. Historically, the fixed rate deals currently available are extraordinarily cheap. By this historical measure, even if you miss the bottom, you have secured yourself a fantastic price and peace of mind.
I find the five- to ten-year mortgages to be especially cheap, with some deals costing less than 3% (or a bit more with lower fees). I like these longer deals at today's prices despite the fact that some of them, even today, are more expensive than lenders' standard variable rates.
The safety you get from them, provided your circumstances are right for a longer tie in, cannot be underestimated, nor can the benefit of securing a long deal at historically low rates that requires no more switching, and no more switching fees or legal costs, for some time to come.
What do you think? Have you remortgaged? Or are you still hanging on? Let us know your thoughts in the comment box below.
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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), 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.
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