Remortgaging: Is now a good time?

BY Ned Browne

17th Mar 2020 Property

3 min read

Remortgaging: Is now a good time?
Our property expert has the lowdown on why 2020 could be the best year ever to remortgage your property
On August 2, 2018, the Bank of England increased the base rate from 0.50 per cent to 0.75 per cent, and that’s where it stayed. Until the 11th March 2020, when it was cut to just 0.25 per cent, in response to the Coronavirus.
Leaving the Coronavirus issues to one side, obviously, this is great news for borrowers, but not so good for savers. And it should be noted that, although the Bank of England has set the base rate since 1694, it wasn’t until January 2009 that the base rate dropped to below 2 per cent. The financial crisis certainly has given rise to extraordinary times.

Will interest rates stay low?

The Bank of England sets the base rate based on economic indicators. If, for example, economic growth is slowing, it tends to cut the base rate. However, if inflation is above the government’s 2 per cent target, it may decide to increase interest rates.  
But, 2020 is set to be a year of uncertainty. Much will hinge on the government’s post-Brexit deal with the European Union. If no deal is reached by 31st December 2020, it is likely that the value of the pound will fall. And, given that we import 80 per cent of the food we eat, for example, that is likely to cause inflation.
Moreover, if the government decides to impose tariffs on imports from the European Union, inflation could rise further. And, higher inflation is likely to mean higher interest rates.

Better safe than sorry

At the time of writing, the best five-year, fixed-rate mortgage available was 1.47 per cent. This is unbelievably inexpensive. And, if you can avail yourself of this rate, I would urge you to do so. However, this rate will not be available to everyone.

Who is eligible to get the best rates?

There are a number of factors that affect how much interest you pay:
  • The Loan To Value (LTV) rateEffectively the lender is looking at how much equity you have in the property. The rates get cheaper as your equity level rises. Those with just five per cent equity will pay the highest rates. Those with 40 per cent plus equity will pay the lowest.
  • Affordability of the loan: Since April 2014 lenders have been obliged to stress test their loans. In other words, they have to determine whether or not you could pay the loan if interest rates were to rise.
  • Your credit score: People with the best credit history will get access to the best loans.

How to improve your credit score

Improving your credit score can take some time, so start now.  Aside from making sure you are on the electoral roll, here are some other things you should do:
  • Credit card debt: If you have credit card debt, you need to pay this off as soon as possible. You then need to get into the habit of paying off your credit card bill in full every month.
  • Cancel credit cards that you don’t use: Some lenders don’t like that fact the people with multiple credit cards have access to instant [high-interest] cash without having to pass additional credit checks.
  • Check all the addresses on your file: Even having your mobile contract registered at an old address can lead to a mortgage being declined.  
  • Credit cards are not ATMs: Under no circumstance should you withdraw cash from your credit card. It will be noted on your file and earmarks you as profligate.
  • Remember the records only go back six years: If you have anything ugly on your file, such as a county court judgment (CCJ) you may be able to wait it out. Check the date and see if that’s a possible option.
  • Don’t get held back by your ex: Close any joint bank accounts, credit cards, etc held with your ex-partner. Also, you can write to credit agencies and ask them to delink you. Otherwise, you are at risk of their poor credit history dragging you down too.
  • Don’t use your overdraft: This will not only improve your credit rating, but it will also look better on your application. Remember, lenders will want to see three months’ worth of bank statements.
  • Never take out a payday loan: Most lenders will reject your application out of hand as they will consider you unable to manage basic finances.

In conclusion

Money is cheap at the moment. But there is no guarantee it will remain that way. If you are able, 2020 is probably a great year to remortgage. And, if you can’t see your circumstances changing in the foreseeable future, fix the rate for at least five years. 
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