Get £300 for remortgaging!

by John Fitzsimons on 02 July 2010  |  0 comments
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It’s possible to make a few quid up front for remortgaging. But is now a good time to do so?

Last week saw the first signs that the days of record low Base Rate might just be coming to an end.

The minutes from the Monetary Policy Committee’s meeting to decide what to do with Base Rate last month revealed that one member, Andrew Sentance, voted for an increase to 0.75%, due to fears over rising inflation.

This marks the first time in two years that a member of the committee has called for an increase in Base Rate, and with inflation forecast to increase still further in the coming months thanks to the VAT increase, those fears are only going to grow stronger.

Chances are there are still a few months to go before Base Rate begins its ascent northwards, but what is clear is that it will start to happen sooner rather than later.

The remortgage conundrum

Does that mean now is a good time to remortgage though?

Many borrowers are still enjoying extraordinarily low rates, particularly those who are currently on their lender’s Standard Variable Rate (the rate you move onto once you come to the end of your initial promotional period).

Why would you give up an ultra-low rate to remortgage to a more expensive deal?

Remortgage and get £300!

One lender has made moves to try to entice their customers into remortgaging by offering a cash bonus.

The largest building society in the UK, Nationwide, has announced that any existing customers that remortgage with the lender will be given a whopping £300 in cashback for doing so, a move that will certainly help to tempt a few borrowers.

It’s easy to see why Nationwide would choose to do so. The building society boasts one of the lowest SVRs in the country, and has a pledge to existing customers not to raise its SVR by more than 2% above Base Rate. However, the mutual reckons this pledge cost them £450m in the last financial year.

That’s why last year it announced that no new customers would be entitled to the SVR, and would instead move to a Standard Mortgage Rate once their initial mortgage finished, a rate that currently stands at a far higher - and therefore profitable - 3.99%.

So while the £300 looks attractive, this only applies to borrowers already enjoying some of the lowest mortgage rates in the country. Is £300 really going to be enough to tempt them into remortgaging?

I doubt it.

Time for some security

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However, irrespective of any cash incentives on offer, you can make a decent argument for choosing to remortgaging now.

Personally I’d say that borrowers should consider remortgaging as they have the opportunity to secure a decent fixed rate for the longer term.

Yes, in order to do so the amount they shell out on the mortgage each month will increase in the short term.. However, once Base Rate starts to move upwards - or even looks like it is about to increase – lenders will start making their products more expensive. So why not take advantage now? Why wait?

Right now borrowers have the opportunity to fix their mortgages at historically low rates, and for a sizeable period too. A couple of weeks ago I wrote about the option of fixing your mortgage rate for an entire decade, with the market-leading deal at 4.99%, a frankly incredible rate for that timescale.

However, even just fixing for a couple of years strikes me as a sensible move right now. Sure, you could sit on the SVR and wait for rates to start to move upwards, but by the time you do choose to remortgage, chances are the deals on offer won’t be as cheap as the fixed deals you can get right now.

The best of both worlds

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• John Fitzsimons writes:

  Should you get a fixed rate or a tracker?

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However, there will be some that still think a variable deal is a better option for remortgaging, since the accepted wisdom is that Base Rate will rise slowly rather than in sharp increments. Therefore a variable deal would allow them to continue to take advantage of such low rates.

And if they are on one of the Standard Variable Rates that are significantly higher than Nationwide’s, those mega-low trackers will no doubt start to look mighty tempting.

While a traditional tracker mortgage might seem a good bet, personally if I was to go for a variable deal it would always be a lifetime tracker. Not only are the rates still good, but if Base Rate does increase quicker than expected, you won’t be whacked with punitive early repayment charges to remortgage elsewhere, leaving you to enjoy the low monthly repayments with some peace of mind.

For more on why these mortgages are great, have a read of Why I think the terrific term tracker is the best mortgage.

15 top fixed rate remortgage deals

15 top variable remortgage deals

More: Why you're better off with a tracker mortgage | Beware anyone selling property this year

At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 4045 or email mortgages@lovemoney.com for more help.

This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article. 

Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term will revert to the lender's standard variable rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.