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All I want for Christmas is… a cheaper mortgage

Banks offering festive rate cuts and cashback deals for buyers and remortgagers

With the festive season in full swing, 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 offering cheaper mortgage deals.

Not everyone’s feeling so generous, however, with a handful of lenders withdrawing deals as they wind down for the year.

  • Whether you’re a first-time buyer or a landlord, you can get an expert recommendation on the best mortgage for you by calling Which? Mortgage Advisers on 0800 197 8461.

Remortgaging rates cut ahead of Christmas

Christmas is often an expensive time of year – but you could have more cash to spend on presents in December 2019 if you remortgage to a cheaper deal now.

The biggest rate cuts this month are on offer at lower loan-to-value (LTV) levels, meaning they’re ideal for homeowners who’ve built up a bit more equity and are looking 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 can get an interest rate of just 1.94% (with a £995 fee). Barclays has launched a similar deal at the same LTV level.

There’s good news for first-time buyers, too, as Lloyds Bank has cut the cost 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 complete before the end of the year.

  • Find out more: check out which bank or building society gets top marks for customer satisfaction with our mortgage lender reviews.

Will mortgages continue to get cheaper?

There are still three weeks to go before the big day, and it’s possible that we could see further price cuts.

Mortgage rates usually drop towards the end of the year, though that trend reversed in 2017 as prices rose from historically low rates.

Between October and December this year, the average rate on a 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.

2014 change from October to December 2015 Oct-Dec change 2016 Oct-Dec change 2017 Oct-Dec change 2018 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%

Source: Moneyfacts


Cashback incentives on the rise

So why aren’t mortgage rates falling by a bigger amount, as they did from 2014-2016?

Quite simply, with two increases in the Bank of England base rate in the last 13 months, lenders are finding their margins more tightly squeezed.

Because of this, they’re showing their Christmas cheer by offering more cashback deals instead.

Data from Moneyfacts shows that 29% of residential mortgages now offer some form of cashback – with 200 more cashback incentives available now than a year ago.

Rachael Springall of Moneyfacts says: ‘Lenders will be focused on meeting their annual lending targets, but at the same time, it will be increasingly difficult to improve their range by rate alone due to the squeeze on their margins.

‘Therefore, providers have revisited their incentive packages as a way to entice prospective borrowers, such as by offering cashback or creating a bundle of cost-saving incentives upfront.’

Should you remortgage this Christmas?

Whether or not you should remortgage depends on the particulars of your current deal, with two primary factors to consider:

When will you be moved on to your lender’s SVR?

If you have a fixed-rate mortgage, you’ll be moved on to 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 – which should come as no surprise given the recent increases to the base rate.

In fact, research conducted by Which? earlier this year found that homeowners who fail to remortgage before the end of their fixed term could end up paying £4,000 more per year than they need to.

If you’re thinking of remortgaging, there’s usually no reason to wait. Most banks will allow you to agree a new deal up to six months before the end of your current one.

Will you need to pay early repayment charges?

Of course, remortgaging isn’t right for everyone – especially those who are tied into longer fixed-term deals.

That’s because many mortgages come with early repayment charges (ERCs), which can amount to around 5% of the remaining amount on your loan – potentially adding many thousands of pounds to the cost of remortgaging.

If you’re subject to ERCs, you’ll probably need to wait until the end of your fixed term to get a better deal.

  • Find out more: use Which? Mortgage Advisers’ remortgaging calculator to work out what rate a deal would need to offer in order to make it worth switching.

Advice on your mortgage options

If you’d like a recommendation on the best mortgage or remortgage deal for your personal circumstances, call Which? Mortgage Advisers for a free consultation on 0800 197 8461 or fill in the form below for a call back.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.

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