Londoners are the most susceptible to the detrimental effects of this cost of living crisis, research from the City Hall has shown. With inflation creeping up past double digits across the UK, those residing in London are likely to feel the pinch more than the rest of the UK with inflation 1.5% higher than the national average.
The FCA released an article estimating savings of £1240 annually for UK mortgage holders that could benefit by switching. Considering the cost of a home in London versus the rest of the UK, London homeowners could save £1000’s more by switching lenders.
Why are mortgage payments increasing again?
Prices of the basket used to measure the Consumer Price Index in August 2022 were a staggering 9.9% higher than 12 months prior leaving the British public struggling - particularly those residing in cities known for their already inflated costs of living. Electricity, gas and petrol are appreciating in price the most with an almost a 100% increase in price in domestic gas alone.
Homeowners with a mortgage will also suffer the consequences of growing inflation as mortgage interest rates continue to climb. Those not currently on a fixed rate mortgage are facing higher mortgage repayments as The Bank of England base rate rises.
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How does rising inflation impact homeowners with a mortgage?
To combat inflation, policy makers at the Bank of England are increasing their base rate - the ‘driver’ of mortgage rates . When the base rate changes, lenders follow suit, driving up the cost of borrowing money and increasing all ‘’non-fixed’’ loan or mortgage repayments.
Over the course of the past year, the Bank of England base rate has had a 7-fold increase, jumping from 0.25% in December 2022 to 1.75% in August 2022, resulting in mortgages reaching an average of 4% - the highest since 2013. What’s worse, this trend is likely to continue until inflation is under control.
The ‘BOE’ has forecasted that UK will reach surpass 13% and remain elevated throughout much of 2023, before returning back to the targeted 2% in two years time.
If you are on a standard variable rate or tracker mortgage, expect to see mortgage payments increase in the months ahead. But by remortgaging now and locking in a new fixed rate deal, you can avoid overpaying on your mortgage and protect yourself against further interest rate raises in the future.
How can remortgaging help you save?
Standard Variable Rate (SVR) mortgage products tend to be the product most mortgage holders end up on when their introductory offer or fixed rate product duration expires. If a mortgage holder does not make arrangements to switch products or move to a new lender at expiry they’ll move to the SVR which tends to be quite a bit higher than the previous rate.
Life gets in the way, it seems like an arduous process for what feels like a small saving but if the expected saving for the average Londoner in this position is £300 per month it’s worth speaking to a mortgage broker and get that saving. Moving to a fixed rate product also provides stability in this cost of living crisis. It’s nice to know what your monthly mortgage payment will be regardless of what interest rates do in the future.
So how much could I save by remortgaging?
How much you can save depends on the size of your mortgage. Let’s take an example to illustrate the potential savings:
Emma and her husband, John, purchased a property in London for £300,000, taking out a mortgage in December 2021 for £240,000 after putting down a 20% deposit. Their monthly repayments were c. £1,092 per month with a 3.6% interest rate. Interest rates have since risen to 4.25%, resulting in increased monthly mortgage repayments of £1,180 per month, £88 more than what they were paying a year prior.
But if interest rates continue and reach 6.25%. Emma and John are looking at monthly repayments of £1477. £300 per month more.
By remortgaging, Emma and John should consider locking in a fixed-rate mortgage deal to protect themselves from any future interest rate increases and to save hundreds of pounds on their mortgage every month.
The quickest way to remortgage
The most popular time to remortgage is when your fixed-rate term is coming to an end. This is when you are at risk of your monthly mortgage payments increasing, may the Bank of England base rate increase. You may be required to pay an early repayment charge if you are still in the initial discounted period of your mortgage. The amount you may be required to pay is highly dependent on the lender, your individual mortgage terms, and the lender you are with.
You can remortgage independently by applying directly from the lender’s website, or simply get in touch with a broker who will be able to do all the research for you and find a deal that will be best suited for you.
Remortgaging through a mortgage Broker, can also offer potential savings on your mortgage, as oftentimes they have access to deals that are not widely available to the public. You also get to benefit from their additional advice and guidance - from the initial application to the moment your remortgage has formally been confirmed.
You can book a call with out of our experienced Brokers here , Or alternatively call us directly on 0345 355 2270.