Improving rather than moving? Make the most of low mortgage rates

The easing of planning laws is likely to prompt more homeowners to consider improving their properties rather than moving.

Homeowners will soon be able to add extensions and build extra space above their properties via a fast track approval process, under plans recently unveiled by the Prime Minister Boris Johnson.

Those considering home improvements may want to take advantage of current low mortgage rates to help them fund their building projects. If you are considering remortgaging to pay for home improvements, make sure you start the process sooner rather than later, as the market is currently very busy. Many lenders will take longer than usual to process applications or may need to see more supporting documentation from you before they’ll agree to lend you additional funds.

Having all the paperwork you might need readily available should help speed things along. Find out what information you might need to provide in our blog ‘What do I need for my mortgage application?’

Remortgage to cut costs

Even if you’re not planning to improve your property, if you’re currently on your lender’s standard variable rate you could potentially make big savings by switching to a better deal.

There are around 800,000 homeowners currently sitting on SVRs, who could be missing out on combined savings of £2 billion by not moving to a more competitive deal.

The SVR is the rate you usually move onto automatically when your mortgage deal finishes. They tend to be much higher than other mortgage rates, and there is typically no penalty to pay if you move away from this rate to a new mortgage deal.

According to research by comparison site Comparethemarket.com, homeowners who are currently languishing on SVRs could save as much as £2,300 if they switched to a two-year fixed rate deal.

This is based on someone with the average mortgage debt in the UK of just over £135,000, paying a typical SVR of 4.09%. If they switched to the average 1.42% two-year fixed mortgage rate, their monthly payments would fall from an average of £658 to £465 a month, a saving of £193 a month or £2,316 a year.

Savings are likely to be highest for those who own a significant amount of equity in their homes, as lenders tend to offer their best rates to those borrowing 60% or less of the property value.

Don’t wait until your current deal finishes

You don’t have to wait until your existing mortgage deal ends to start the remortgage ball rolling. Most lenders will allow you to secure your next mortgage deal three to six months before your current deal finishes.

The main benefit of doing this is that you can arrange for your new mortgage deal to begin as soon as your other one finishes, so that you don’t have to move onto the standard variable rate (SVR) at all.

Bear in mind that although forward planning is a good idea, the longer there is before you need your new deal to begin, the more limited the choice of lender and remortgage deals available to you might be.

Remember too that before signing up for a new mortgage deal, check what your current lender can offer you – they may have some competitive deals available for existing customers. You can then compare what they can offer you with remortgage deals provided by different lenders.