My partner and I took out a 20 per cent Help to Buy equity loan in 2014 when we bought out first house.
Once our two-year fix had ended, we were unable to switch provider and had to remain with our existing lender, Halifax, for another two years.
That period is about to end in April 2019, after the UK is due to leave the EU. This worries us as we don’t know what’s going to happen with interest rates and home valuations once this happens.
How early can we secure a new fixed-term mortgage before the current mortgage ends? Can we secure a deal now to move onto in April?
– Reader, via email
If remortgaging early you should factor in any early repayment charges on the current deal
Will Kirkman, of This is Money, replies: Many homeowners will be coming to the end of their fixed-rate periods as Britain leaves the EU in March and will be asking themselves similar questions.
The good news is lenders are currently pulling out all the stops to attract more business as the market freezes up. This has resulted in historically low mortgage rates, despite the Bank of England raising the Base Rate in August.
However, the Bank has signalled that interest rates may rise further depending on the final outcome of the Brexit negotiations.
This, coupled with the as yet unknown impact of Brexit on property valuations, as you have highlighted, has lead to a significant slowdown in housing transactions across the country.
The fact that you also used a Help to Buy equity loan to purchase your house adds an extra layer of complexity to your situation.
We asked David Hollingworth of broker L&C Mortgages to lay out your options.
David Hollingworth of broker L&C Mortgages
David Hollingworth, of mortgage broker L&C Mortgages, says: It’s possible to start the remortgaging process well before the end of a current mortgage deal and most mortgage offers will usually be valid for between three and six months.
That means that you can make your application months ahead and lock the rate in on a current product.
In fact, it’s sensible for any borrower to think ahead and to start the remortgage process at least three months before the end of the current rate.
This will help ensure that you have everything together and in hand, ready for a smooth switchover to a new deal and avoiding a period at a high standard variable rate.
It’s important that you factor in any early repayment charges on the current deal as these can be substantial and could eat into, or even rub out, any potential savings from switching.
Early repayment charges, also known as ERCs, will typically be calculated as a percentage of the outstanding mortgage but you will be able to check the charge and its duration on your original mortgage offer.
Remortgaging with a Help to Buy equity loan in place does limit the options available, as some lenders will not even consider Help to Buy remortgages.
It can be more complicated still if you are looking to repay some of the equity loan, sometimes known as staircasing.
That will usually need to be 10 per cent of the current property value and require an independent valuation, as well as involving the Help to Buy administrator.
Options will be a little wider if you are planning to release equity to repay the entire equity loan, as most lenders will consider lending in that situation.
There’s a lot of uncertainty at the moment but the mortgage market has remained extremely competitive with rates still at very low levels, despite the August increase to the Bank of England’s base rate.
There’s nothing to suggest that rates are likely to climb radically in the near term but the Bank of England hasn’t ruled out changes to base rate in either direction, depending on the impact of Brexit.
Although that could see base rate cut, it is always difficult to second guess where rates might head. The mortgage deals currently available remain very attractive and you’re in the right kind of timeframe to start the shopping around process. That will enable you to compare rates from other lenders against anything on offer from your current lender.
If you pay fees to a lender as part of the application then those upfront fees would in all likelihood be lost if you subsequently changed your mind.
There are lots of deals that don’t require upfront fees to be paid though, so you may well be able to avoid that.
Overall I think that you are doing the right thing in starting to prepare for the end of your deal now and it certainly sounds like you will value the peace of mind that shopping around now could give you.
This is Money’s Will Kirkman says: Whenever you come to remortgage it usually pays to have a look at a few different providers to ensure you’re getting the best deal.
You can either do this yourself by going directly to each lender or you can use This is Money’s mortgage finder tool which allows you to search for the lenders that offer Help to Buy remortgages.
It’s always a good idea to seek independent advice while making big financial decisions.
Lastly, you can find This is Money’s guide to remortgaging with a Help to Buy equity loan by clicking here.