Can we look for a lower mortgage rate before our fixed term ends? Q My husband and I have a two-year, buy-to-let interest-only mortgage that ends in February 2018. Do we have to wait until then to remortgage?
Mortgage rates are at a record low at the moment and that applies to buy-to-let deals too. That’s great news for landlords as they can shop around for a cheaper mortgage deal.
Mortgage interest rates have become increasingly important for landlords, as they get to grips with all the change in the buy-to-let market. The reduction in tax relief on finance costs will mean higher tax bills for many landlords and with a stamp duty surcharge on additional properties there’s good reason to keep a tight rein on mortgage costs.
Another consideration is that although the Bank of England base rate remains at a record low of 0.25%, rates won’t stay this low for ever.
Landlords may therefore be looking to lock their rate down and take advantage of the keen fi xed rates currently available. But before you grab a deal, check whether your current mortgage has any early repayment charges (ERC) as these can be substantial.
If you don’t have to pay ERC, then start shopping around right away. But even if you do have to pay an ERC – and therefore will wait until February to switch to a new deal – it could make sense to start shopping around.
The remortgage process takes time, so therefore I would suggest that you begin that process at least three months before the end of your deal – in your case, in November.
Mortgage offers will typically be valid for between three and six months, so it is possible to lock a rate in even earlier. It will vary from lender to lender, so looking for a longer-term offer may alter the range of options available to you. Locking the rate in now will mean that you protect yourself against any increases in mortgage rates in the meantime.
Of course, you need to weigh that up against the shortening of the fixed-rate period if it has a set end date. For example, if you apply for a fixed-rate mortgage in November 2017, the two years will end in November 2019, even if you don’t actually start the mortgage until February 2018 when your other mortgage ends.
If rates don’t shift and you want to reconsider further down the line, then be aware that any upfront costs are likely to be non-refundable.
David Hollingworth is a mortgage broker at London & Country Mortgages in Bath.