Squeezed Britons are doing everything to cut their spending — from downgrading to a cheaper brand of toilet roll to making their own lunchtime sandwiches. Yet while these money-saving ideas are sensible and help you to feel you are doing your bit, you might be missing out on the biggest budgeting idea of them all - remortgaging.
A surprising two thirds of homeowners admit that they are languishing on the same mortgage deal they initially struck when moving into their home.
Paradoxically, the latest research from Barclays reveals that the majority of homebuyers would switch their mortgage if the new deal would save them just £50 a month once it was all in place.
However, the truth is that many mortgagees could save a great deal more than that if they took advantage of the current low interest-rate environment.
There are two key factors that come into play when you set out to find a cheaper mortgage: how much equity you have in your property and, of course, what rate you are paying right now.
“Most homeowners who took out a mortgage deal before the credit crunch will have seen the initial part come to an end by now,” says Ray Boulger, senior technical manager at broker John Charcol. “That leaves them paying revert-to rates, which can be much higher.”
Many mortgage lenders’ Standard Variable Rates are above three per cent. “But some of the fixed-rate deals currently on the market are some of the cheapest we’ve ever seen,” Boulger adds.
A five-year, hybrid deal from Accord, for loans of up to 75 per cent, charges base rate plus 1.79 per cent until 31 January 2014, followed by a fixed rate of 3.39 per cent for the next three years. There’s a pricey £1,999 fee, but that can be more than recouped by those currently paying higher interest rates.
“For the best deals, those looking to remortgage need at least 15 per cent equity,” adds Boulger. “There are some lenders with low revert-to rates, such as the Woolwich, Alliance and Leicester, Nationwide, Cheltenham and Gloucester and Lloyds TSB. Many of these demand interest of 2.5 per cent or less: with that kind of rate, stick with it.”
But those paying more should consider switching. One of the cheapest lifetime tracker deals on the market is from ING, charging Bank of England base rate plus 3.29 per cent. “That will cheaper than a number of SVRs, particularly from the building societies,” says Boulger.
Even pricing in early repayment and arrangement fees of, say, £1,000, a borrower switching to ING would save 0.61 per cent on the interest bill of repayments. “Remortgaging would pay for itself within 20 months,” adds Boulger. On lenders charging higher SVRs, the cost would be recouped more quickly.