Martin Lewis has urged homeowners whose fixed-rate mortgage deals are coming to an end to start looking for a new deal up to six months in advance to avoid potentially higher repayments. The consumer champion warned that people who secured five-year fixed mortgages at rates below 2 per cent in early 2022 could face a substantial increase in their monthly payments when those deals expire.
Mortgage rates have risen sharply in recent months, with financial markets anticipating further increases in the Bank of England base rate over the next year. In this week's MoneySavingExpert (MSE.com) newsletter, Martin highlighted that markets are currently pricing in four increases over the next 12 months, potentially taking the base rate from 3.75 per cent to 4.75 per cent.
Market expectations and current rates
However, Martin stressed that these are market expectations rather than guaranteed increases, with some economists believing the forecasts could be excessive. The next Bank of England interest rate decision is scheduled for November 5.
Martin explained that fixed mortgage rates are influenced largely by financial market expectations rather than simply following changes to the Bank of England base rate. This means lenders have already incorporated some anticipated increases into the rates currently available to borrowers.
According to MSE.com, the cheapest two-year fixed mortgage rate is currently 4.78 per cent, while the cheapest five-year fix is 4.95 per cent, although the deals available to individual borrowers will depend on their circumstances.
Six-month mortgage warning
One of Martin's main recommendations is for homeowners to investigate their options six months before their existing mortgage deal expires. Many lenders allow customers to secure a new mortgage rate several months before they need it, potentially protecting them against further increases.
Martin said: "The key to these offers is that it means you've got a deal in the bank in case rates get even worse." Borrowers switching to a different lender may be able to arrange a deal up to six months in advance, while those remaining with their existing provider can commonly arrange a product transfer around three months before their current agreement ends.
Martin explained that securing a deal early can provide protection if mortgage rates rise before the existing agreement expires. Importantly, borrowers may also be able to move to a cheaper offer if rates fall before the new mortgage begins, although they should check the conditions attached to any agreement.
Homeowners who allow their existing mortgage deal to expire without arranging another will generally move onto their lender's standard variable rate. MSE.com reports that these rates currently average around 6.5 per cent, potentially leaving borrowers paying considerably more than necessary.
Other checks before remortgaging
Martin also encouraged borrowers to review their loan-to-value ratio, which compares the outstanding mortgage balance with the current value of their property. A lower ratio can help borrowers qualify for more competitive mortgage rates, particularly when they move into a different lending band.
For example, someone with a £175,000 mortgage on a property worth £350,000 would have a loan-to-value ratio of 50 per cent. MSE highlighted that moving from a 95 per cent loan-to-value mortgage to a 60 per cent loan-to-value deal could save more than £500 a year in interest costs on a £200,000 mortgage, based on the rates used in its comparison.
Homeowners approaching a remortgage should also check their credit reports, avoid unnecessary credit applications and consider whether reducing outstanding debts could improve their chances of securing a competitive deal. Martin recommended speaking to a mortgage broker, who can compare available products and help borrowers understand which lenders are most likely to accept their application.
The full mortgage guidance, including Martin's ten tips for first-time buyers and people remortgaging, is available on the MoneySavingExpert website.
