Ask Annie: 'Is now the right time to make my move to a better mortgage?'
Sunday 14 October 2007
Q: I have an uncompetitive mortgage rate but have put off switching to a better deal as my home is on the market and I am planning to move to a bigger place and will want to increase my borrowings. So my original idea was to change mortgage when I changed my house.
However, I am now thinking I should not wait. I am worried by analysts predicting that UK interest rates are set to rise. If this happened, it would be more expensive for me to move to a new fixed-rate deal.
What advice can you give? In addition, if I were to remortgage now, would I be able to increase my loan in the near future?
A: Ray Boulger of mortgage broker John Charcol says: "I think you are wrong about rates. While experts were predicting a rise not so long ago, the last meeting of the Bank of England's Monetary Policy Committee left rates where they were at 5.75 per cent, and the question now is not if they will fall but how soon."
As far as fixed deals go, the price of these is determined by the "swap rates" at which banks lend to each other. Mr Boulger points out that two-year swap rates peaked at 6.33 per cent in July and are around 5.7 per cent now, so they have fallen too as the market has reassessed what is happening in the wider economy.
Mr Boulger's view, then, is that there may be no harm in waiting to choose your fixed mortgage when you actually move. However, there is a proviso. Mr Boulger says the housing market is quieter than it has been recently, so it is possible you could have to stay put longer than planned. "It might therefore still be worth remortgaging if you can get a better deal now," he explains.
"Most loans these days are portable and you would be able to take it to your next house as long as you still qualify for it in terms of job status, income level and mortgage loan-to-value."
As for remortgaging now and then increasing your borrowing when you move, this should be possible but Mr Boulger points out that it is essential to check out the terms and conditions of the new loan.
"If you take out a new fixed-rate mortgage, you could simply get another loan from your lender to top up to the amount you need to buy the next property," he says.
But choosing to top up your existing mortgage could mean you end up with different end dates for your different deals – a so-called "staggered finish" – and have to go on to the lender's standard variable rate for part of the loan until the other part catches up, which could prove expensive.
A worse prospect is that you no longer qualify for a top-up loan when the time comes to move – for instance, if the amount you need to borrow for the new property is too high to meet the lender's criteria. Similarly, if your job status has changed, you could be turned down by your lender or end up paying a higher rate for a self-certified loan.
In the worst case of having to start again with a new lender, you might also face early-redemption charges on your first loan.
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