With the festive season under way, you might be thinking more about Home Alone than home loans, but rate cuts and cashback incentives mean the January sales have come early for mortgage hunters.
As they strive to hit end of year targets, some banks are providing cheaper mortgage deals.
Not everyone’s feeling so generous, however, having a handful of lenders withdrawing deals as they relax for that year.
Remortgaging rates cut ahead of Christmas
Christmas is often an expensive season – but you might have more cash to invest on presents in December 2022 should you remortgage to some cheaper deal now.
The biggest rate cuts this month are on offer at lower loan-to-value (LTV) levels, meaning they’re well suited for homeowners who’ve developed a little more equity and are seeking to remortgage away from their lender’s standard variable rate (SVR).
For example, TSB has chopped 0.35% off its five-year fixed-rate mortgages – meaning borrowers with a 40% deposit could possibly get an interest rate of just 1.94% (having a lb995 fee). Barclays has launched an identical deal in the same LTV level.
There’s great news for first-time buyers, too, as Lloyds Bank has cut the price of its two and five-year fixes at 90% and 95% LTV by 0.3%.
But while these lenders are putting the ho-ho-ho in home ownership this Christmas, others haven’t been so generous, with several banks pulling their deals from the market as time runs out to accomplish before the end of the year.
Will mortgages still get cheaper?
There are still three weeks to visit prior to the big day, and it’s possible that we're able to see further price cuts.
Mortgage rates usually drop towards the end of the year, though that trend reversed in 2022 as prices rose from historically low rates.
Between October and December this year, the typical rate on the two-year fix fell very slightly, while five-year fixes remained the same price.
The table below shows how average rates have changed between October and December in each of the last five years.
2022 change from October to December | 2022 Oct-Dec change | 2022 Oct-Dec change | 2022 Oct-Dec change | 2022 Oct-Dec change | |
Two-year fixed-rate | -0.30% | -0.16% | -0.10% | +0.13% | -0.02% |
Five-year fixed-rate | -0.25% | -0.03% | -0.06% | +0.11% | 0% |
Cashback incentives on the rise
So why aren’t mortgage rates falling by a bigger amount, because they did from 2022-2022?
Quite simply, with two increases in the Bank of England base rate within the last 13 months, lenders are finding their margins more tightly squeezed.
Because of the, they’re showing their Christmas cheer by providing more cashback deals instead.
Data from Moneyfacts shows that 29% of residential mortgages now provide some form of cashback – with 200 more cashback incentives available now than a year ago.
Rachael Springall of Moneyfacts says: ‘Lenders is going to be centered on meeting their annual lending targets, but simultaneously, it will be increasingly difficult to improve their range by rate alone because of the squeeze on their own margins.
‘Therefore, providers have revisited their incentive packages as a way to entice prospective borrowers, for example by providing cashback or developing a bundle of cost-saving incentives upfront.’
Should you remortgage this Christmas?
Whether or not you should remortgage depends on the nuances of your present deal, with two primary things to consider:
When are you moved on for your lender’s SVR?
If you've got a fixed-rate mortgage, you’ll be moved on for your bank’s SVR at the end of your introductory term (usually two or five years).
Research by Moneyfacts claims that the average SVR is now at its highest level since 2009 – that ought to come as no surprise because of the recent increases to the base rate.
In fact, research conducted by Which? captured discovered that homeowners who neglect to remortgage before the end of the fixed term could end up paying lb4,000 more each year compared to what they need to.
If you’re thinking of remortgaging, there’s usually pointless to wait. Most banks will allow you to agree a brand new deal as much as 6 months before the end of your current one.
Will you need to pay early repayment charges?
Of course, remortgaging isn’t right for everyone – particularly those who're tied into longer fixed-term deals.
That’s because many mortgages include early repayment charges (ERCs), which can amount to around 5% of the remaining amount in your loan – potentially adding thousands of pounds to the price of remortgaging.
If you’re subject to ERCs, you’ll probably have to wait until no more your fixed term to obtain a better deal.
Your home might be repossessed if you don't continue repayments on your mortgage.