Over the last year, there have been lots of reports about property prices rising, but very little about how that could create a great opportunity for you to switch to a mortgage product that suits you better.
It’s not only when property prices rise that you should review your mortgage - there are several reasons why it’s well worth doing this on an annual basis.
An improved loan to value ratio
The loan to value (LTV) is a calculation that shows your mortgage borrowing as a percentage of the value of your home. For example, if your home was worth £250,000 in 2020 and you had a mortgage of £200,000, then your LTV would have been 80%.
While there are a few different reasons why you might get an improved LTV over time, the most likely one for this year versus last is an increase in the value of your property.
Using the example above, say your property price had increased over the past year to £275,000, and you’d spent another £10,000 paying down your mortgage, you would now have an LTV of 69% (£190,000 ÷ £275,000 x 100).
From a lender’s perspective, the lower your LTV, the less risky it is for them to lend to you, so they will often offer better rates.
Changes to interest rates
With the Bank of England base rate currently at 0.1%, some of the mortgage interest rates available today are likely to be among the lowest, at sub-1%.
It’s expected that rates will continue to stay low - for now - so if you already have a mortgage or are looking to get on the property ladder, when was the last time you checked what products might be available to you? If you haven’t reviewed what’s out there in the last 12 months, it’s definitely worth speaking to a mortgage broker to find out whether the deal you currently have really is the best one for you.
We don’t know when rates will go up – but what we do know is it’s very difficult for them to fall much lower.
Changes to mortgage products
Another reason to check your mortgage options every year is that lenders are constantly reviewing their product range against the economic and individual lending situation they’re operating within - typically making changes to their mortgage offerings at least once a quarter.
It may be that they have spare money they need to be lending, which means there’s a chance they will consider offering better deals to attract more borrowers.
For example, if you’re self-employed you might have found it quite difficult to secure lending during the pandemic. You may have taken advantage of the Self Employment Income Support Scheme or used one of the government grants, which might have impacted your ability to borrow, or perhaps you just made a lot less money than usual. However, as the economy recovers, some lenders are reviewing their lending policies - and adjusting them as we speak - so if you weren’t able to get on the ladder or switch your mortgage to a more appropriate deal last year, it might be worth another go.
Your credit rating can also make a difference to the products available to you. If you didn’t have a great credit rating when you took out your mortgage and that’s now improved, you may be able to switch to a product with a lower interest rate.
Why it’s worth contacting a broker to review your mortgage
It is possible to go direct to lenders to find out about their latest products. However, with so many factors influencing whether switching mortgages is the right move - such as the rate, terms and conditions, redemption penalties, length of the mortgage and your own personal and financial objectives for the future - it’s well worth contacting a qualified and regulated mortgage broker who can explain the full implications of switching.
There is the added advantage that a broker will be able to quickly identify which lenders and products may be more suitable for you and your circumstances, saving you hours of research. In some cases, they may also have access to exclusive deals that you wouldn’t be able to find if you went to a lender directly.
Whether you go direct to a lender or use a broker, it’s well worth setting up an annual diary note to review your mortgage finance. Remember, even a small reduction in your interest rate could result in a saving of thousands, if not tens of thousands of pounds over the lifetime of your mortgage.
For mortgage advice you can trust, our partner Mortgage Scout (www.mortgagescout.co.uk) offers appointments that you can book online to discuss re-mortgaging.
You may have to pay an early repayment charge to your existing lender if you remortgage.
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1%, but a typical fee is 0.3% of the amount borrowed.