As your fixed-rate mortgage deal draws to an end, the need to assess your options takes on even more importance. With interest rates at their highest in decades, and many households feeling the pinch, it can be an unsettling time.
Here, we set out everything you need to do in plain terms, walking you through the key choices available, including whether to remortgage with your current lender or a new one, or sell your home.
What is a fixed-rate mortgage?
A fixed-rate mortgage means your interest rate stays the same for an agreed period of time – typically two, three or five years. Your monthly repayments don’t fluctuate even when wider market rates rise or fall.
This provides payment certainty and protects you from repayment increases for the specified fixed timeframe. After the initial deal period comes to an end, you usually shift onto the lender’s standard variable rate, which can go up or down. For this reason, many borrowers decide to remortgage, and lock themselves into another fixed-rate deal.
What happens when my fixed-rate mortgage ends?
As your fixed term comes to an end, you essentially have two options: either revert to your lender’s standard variable rate (SVR) or remortgage with a new fixed or variable deal. If you switch to your existing lender’s SVR, monthly repayments can fluctuate in line with the Bank of England’s base rate (BoE). An SVR also tends to be higher interest than the fixed deals available, which is why people generally look for fixed rate deals.
Remortgaging allows you to lock in an additional period of rate certainty. This may mean switching lenders to find your best deal.
Many people whose fixed rate is coming to an end this year will likely move onto significantly higher interest rates due to the huge BoE base rate increases over the past two-and-a-bit years. So you might be feeling a bit worried about your low interest fixed-rate coming to an end, and understandably so.
Starting the remortgage process four to six months before your term finishes can provide you with sufficient time to assess alternatives and apply elsewhere if needed. Understanding these options is key to making the most financially sound choice.
What are my options at the end of a fixed-rate mortgage?
There are a few things you can do at the end of your fixed-rate mortgage, depending on your next move regarding the property. Should you wish to keep it, you can:
Revert to your lender’s Standard Variable Rate
- Staying with your current mortgage deal when your term finishes is an option. However, you would shift to their standard variable rate (SVR).
- This means your interest rate and, thus, monthly repayments can now fluctuate whenever the lender changes their SVR or the BoE base rate changes. It tends to be much higher than fixed-rate deals.
- If you think that interest rates will come back down over the next year of so, you could stick with your SVR until the rates come down before locking in you next fixed-rate deal, but it would be gamble because SVRs generally are more expensive than fixed rates, and no one except the bank of England knows the future of interest rates. The rates might stay the same over the next few years, or even go up.
- You skip new arrangement fees and valuation checks but have less rate certainty when you stay on your SVR.
Get a New Fixed-Rate or Tracker Mortgage
- Whether with your existing lender or a new one, remortgaging provides fresh terms.
- You can often secure another one, two or five-year fixed deal at a new rate. This maintains the predictable monthly payments.
- Your new mortgage repayments will be based on the Bank of England base rate and will be much higher in your new deal vs what you had previously.
- If BoE base rates drop in a couple of years, and better mortgage deals become available you’ll be stuck with a fixed rate mortgage that you signed up to when rates were higher.
- Changing lenders may offer better deals than the SVR, but it can also incur fees like valuations and legal costs.
The big question
Of course the big question is whether you should stay on your existing lenders SVR when your fixed rate ends, or lock yourself into a new fixed rate deal. Unfortunately, no one except BoE knows the answer to this, and they aren’t giving away many clues.
If you lock yourself into a new fixed-rate deal, the worst case scenario is you’ll be locked into a high interest mortgage deal while interest rates drop and you’ll end up paying over the odds for the next 3 – 5 years. Best case scenario is that interest rates go up or stay the same and you’ll be protected from any increases while benefiting from the cost effectiveness and protection of a fixed rate mortgage.
Will my new mortgage be higher?
With interest rates recently rising in the UK, it’s very likely any new mortgage you take on – whether through remortgaging with your existing lender or switching to get the best deal – will be higher than your previous fixed rate.
The Bank of England base rate has increased from 0.1% to 5.25%, causing lenders to price new fixed-rate deals far higher than previously. Even reverting to your lender’s variable rate will mean more interest and higher monthly payments.
In this market, focusing on limiting cost rises rather than outright savings is the best move for many homeowners. Securing rate certainty via competitive remortgaging comparison still offers useful protection relative to unpredictable standard variable rates.
Many homeowners are worried about switching to a new mortgage because today’s interest rates are huge compared to what they were 3 – 5 years ago.
If you can’t afford the new interest rates, you may need to consider selling the property, or switching to an interest-only mortgage. If you switch to an interest-only mortgage, it will reduce the monthly payments, but you won’t be gaining any additional equity in the property, so you’ll end up paying more overall to service the debt.
If you still have a few years remaining before your low-interest mortgage’s fixed-rate period comes to an end, it would be pertinent to make as many overpayments as possible now, before it ends. This will increase your equity in the property and reduce the money you’ll need to borrow on remortgaging. Interest is a percentage of money owed, so by borrowing less you pay less money in interest each month. For many borrowers, overpayments will be easier to make now while they are still on a low interest rate, versus after remortgaging.
Selling a home with a mortgage
When selling a home before the end of a fixed-rate mortgage term, you have two main options in regard to the outstanding loan balance:
- Pay off the mortgage fully by repaying the outstanding balance. This repayment can be done with the proceeds of the sale, but may trigger early repayment charges, particularly if the repayment occurs during a fixed-term. Check your mortgage contract to find out in what situations early repayment fees are charged. Once a mortgage is fully repaid, you’ll have debt freedom from that property.
- Transfer the balance to a new mortgage on another home you’re purchasing if loan portability options are in your terms. This can often be done while you are locked into a fixed-rate, but there may be separate fees charged by the lender for porting. This option keeps the predictability of existing fixed repayments for the remainder of the initial fixed-term deal period.
Essentially, unpaid mortgage debt and the associated interest payments cannot remain indefinitely once letting go of the property asset itself. But in the short term, switching to a lender’s standard variable rate or transferring to a new property purchase can maintain the lending obligation even after the fixed rate period you initially signed up for expires.
Selling a home and timing your mortgage
If you are contemplating selling your property, you could choose to get ahead of any further housing market fluctuations or rising interest rates by finding a buyer and getting the ball rolling on the sale before the fixed term finishes and then try to time things so that you are out of the fixed term before you exchange contracts. However, this puts pressure on you to manage the timings of the sale, which is difficult to do because many aspects of the sale timings are dependent on the buyer.
Alternatively, you could put the house up for sale after the fixed-term ends and you are on an expensive SVR mortgage. Going down this route provides more time for viewings and time to secure an optimal offer. There are caveats, however. You’ll be paying a higher mortgage rate while you wait for the sale process to happen. Also, if prospective buyers become aware you need to complete quickly due to crushingly high interest rates, they might try their luck at gazundering you.
Carefully weighing up these timing considerations against projected costs, best and worst-case sale prices, and your personal circumstances can determine if it makes more financial sense to complete the sale before, during, or immediately after your current mortgage arrangement ends.
What options do I have for selling my home before my house quickly?
If you decide to sell your home instead of remortgage, the best option for speed and predictable timings is Property Rescue…
Property Rescue can buy property directly from you, and at a precise time scale that works for you. We can complete in as little as 7-days, and we can even take care of all the legal aspects. For anyone looking to sell their home exactly when their fixed-rate mortgage deal comes to an end, so that they can avoid high interest rates, Property Rescue is the perfect solution. We guarantee a fast cash sale, we buy property in any condition and you don’t pay a single penny to get your house sold.
Get a free, no-obligation quote for your house now.