Remortgaging in 2023: the outlook is improving

If you’re one of those people, you’re likely to be feeling uneasy. Anyone who last fixed their rate in 2020 will be paying less than 2% on their mortgage, while now, in the wake of recent Bank of England base rate rises and with the shockwaves of the Truss/Kwarteng mini-budget still being felt in the industry, there are no products on offer that look anything like that. Before Christmas, people were looking at two-year fixes that approached 6%.

But there is some good news. Over the past few days, lenders have been feeling the pinch from the fall in demand, and they are reacting by lowering their rates. In fact, what has been dubbed a ‘mortgage price war’ is breaking out as TSB, Nationwide and First Direct have all reduced the rates on their products this week, some of them by as much as 1%. This is significant. To illustrate: if the interest rate on a £100,000 mortgage rises from 2% to 6%, assuming a 25-year capital and repayment mortgage, then the monthly repayment jumps from £220 to £644. At an interest rate of 4%, repayments are £528. Will rates continue to plummet? And what does this all mean for someone whose term is coming to an end?

Jed Newton of Trinity Financial says that first of all, it’s important to take advice from an expert. “The marketplace has been through a huge period of turbulence and is yet to fully settle at what is likely to be the new normal.  Over the past three months we have been securing rates for our clients, and then reviewing and reapplying if necessary.  This is the only way to ensure that people secure the best product as it has been so fluid. The good news is fixed rates are still decreasing, but unfortunately not to the level that they were prior to the ill-fated Truss mini-budget.  There is an expectation that the trend of decreases will continue over the coming weeks. Overall, the expectation is much more positive now than it was in November of last year.  While we are unlikely to see the sort of rates that people have become used to, mortgages are affordable for clients and demand for remortgages is improving.”

So while we’re not going be stuck with 2022’s worst-case scenario figures, we are going to have to accept that the long period of cheap money is over. The Bank of England lifted interest rates from 0.25% at the beginning of 2022 to 3.5% in December, its highest rate since October 2008. And while opinions vary as to what will happen to interest rates in the coming months, it looks as though tracker mortgages are proving a popular choice over fixed rates. Newton says: “Many clients have been taking variable rate mortgages as these have appeared to be good value; however with recent base rate changes and more increases on the way, the difference is less than it was.  The choice of what kind of product needs to take into account a range of factors and should not simply be based around the headline rate available.” In short, the advice is: don’t panic.