What Happens When Your Fixed Rate Mortgage Ends?
Your lender writes to you a few months before your fixed rate ends. The letter is polite, slightly vague, and contains an offer. A good number of people read it, feel relieved that it's been handled, and sign.
Sometimes that's the right call, but not always.
What happens if you do nothing
You roll onto your lender's standard variable rate. The SVR is the default rate, it's set by the lender rather than tracking anything in particular, and it's almost always considerably more expensive than anything you'd have chosen.
To put a number on it, take £180,000 with 20 years remaining. At an illustrative 4.2%, that's around £1,110 a month. At an illustrative 7.5% SVR, around £1,450. Roughly £340 a month, or £4,000 a year, for doing nothing. (Rates used here are for illustration only and change constantly.)
The SVR also moves whenever the lender decides it should, so it's the one rate you can't plan around.
When to start looking
Six months before your current deal ends.
Most lenders will let you reserve a new rate up to six months ahead. If rates fall between reserving and completing, you can usually switch to the better one. If they rise, you've locked the old one in. That's a one-sided bet in your favour, and the only cost is remembering to do it.
Put the date in your phone now. Most people who end up on an SVR didn't decide to, they just ran out of runway.
Product transfer or remortgage
A product transfer means taking a new rate with your existing lender. A remortgage means moving to a different one.
A product transfer is quick, there's usually no valuation and no solicitor, and in most cases no fresh affordability assessment. The catch is that you're choosing from one lender's range, and you have no way of knowing whether it's competitive without looking at the rest of the market.
A remortgage opens up every lender, lets you borrow more, change your term, add or remove a person from the mortgage, and it usually comes with free legals and a free valuation on the remortgage products. It takes longer, typically four to eight weeks, and involves a full application.
Staying put genuinely is the better answer sometimes:
- Your income has dropped or your circumstances have changed in a way that would make a new affordability assessment difficult
- Your remaining balance is small enough that any fees would swallow the saving
- You've only a few years left on the term
- You need it done quickly
The point isn't that remortgaging always wins. It's that you can't know which one wins without comparing them, and your lender's letter only shows you one side.
What's probably changed since you last borrowed
Your loan to value has almost certainly improved. You've been paying the mortgage down for two or five years, and the property may have gone up in value. If you started at 90% and you're now at 78%, you've crossed into a cheaper pricing band and you're entitled to better rates than you were offered last time.
Plenty of people renew without realising this and take a deal priced at a higher LTV than needed.
Can you borrow more at the same time?
Yes, and a remortgage is usually the cheapest moment to do it, because you're arranging a new mortgage anyway. Extensions, loft conversions and new kitchens are the common reasons, and the lender will ask what the money is for.
Consolidating other debts into the mortgage is possible too, and it needs more thought than it usually gets. Moving a credit card balance onto your mortgage lowers the monthly payment, because you're spreading it over twenty years instead of three, for example. But also means you'll typically pay more interest overall, and you've turned an unsecured debt into one secured against your home. Sometimes it's the right answer. It should never be the automatic one, and it's a conversation to have properly rather than a box to tick.
What if your circumstances have changed?
This is where the choice between staying and moving stops being about rate.
If your income has fallen, you've gone self-employed, you've taken on other borrowing, or there's been a blip on your credit file, a product transfer with your existing lender avoids a fresh affordability assessment in most cases. That can be genuinely valuable, and it's worth knowing before you start an application elsewhere that might be declined.
If your income has risen or your credit has improved, the opposite applies. You may now qualify for lenders who wouldn't have looked at you last time.
Either way, the change is the thing that determines the strategy, so it's worth mentioning early rather than halfway through.
Fees, and whether to add them to the loan
A lower rate with a £999 product fee isn't automatically better than a slightly higher rate with no fee. It depends on the size of your loan and the length of the deal. On a large balance the fee is worth paying for the lower rate. On a smaller one the fee-free option often wins.
If you add the fee to the loan you'll pay interest on it for the remaining term, which usually costs more than the fee itself. Paying it upfront is generally cheaper if you can.
This is arithmetic rather than opinion, and it's the sort of thing I'll run through with you properly rather than eyeball.
Where I come in
I'll compare your lender's offer against the whole market and tell you honestly if theirs is the best one, which happens more often than you'd think. If it is, you'll have a straight answer in a short conversation. If it isn't, you'll know exactly what the difference is worth over the term.
Your home may be repossessed if you do not keep up repayments on your mortgage.