Why Remortgaging Still Makes Sense in a High-Rate Environment
When interest rates are high, many homeowners hesitate to remortgage, hoping that rates will fall before they need to act. While this is understandable, it can be a costly mistake. If your current deal has ended and you are on your lender's SVR, you are likely paying an even higher rate than what is available on the open market. Remortgaging to a new deal — even at a rate higher than you might like — will still typically save you money compared to the SVR.
It is important to separate the absolute level of rates from the relative saving you can achieve. Even when base rates are elevated, there is usually a meaningful gap between the best available deals and the SVR. Securing a competitive deal now means locking in that saving, rather than gambling on future rate movements.
Remember also that high interest rates do not last forever. Economic cycles mean that rates will eventually moderate. If you lock into a two-year fix during a period of high rates, you may well be remortgaging again in two years' time when conditions are more favourable. The key is to minimise your costs in the meantime.
Fixed vs Tracker Rates When Rates Are High
Choosing between a fixed rate and a tracker rate becomes a particularly important decision when rates are high. A fixed rate gives you certainty — your payments will not change for the duration of the deal, which can be invaluable for budgeting during a period of economic uncertainty. However, if rates fall during your fix, you will not benefit unless you remortgage again (potentially incurring ERCs).
A tracker rate, which follows the Bank of England base rate plus a set margin, offers the potential upside of lower payments if rates fall. However, it also exposes you to the risk of further increases. If you believe rates have peaked or are close to peaking, a tracker could work in your favour. But if rates continue to rise, your payments will increase accordingly.
Some homeowners in high-rate environments opt for shorter fixed terms — a two-year fix rather than a five-year fix — on the basis that they can reassess when the deal ends and hopefully secure a better rate at that point. This strategy carries some risk but can be prudent if you expect rates to decline within a couple of years.
Strategies to Reduce Your Rate in a High-Rate Market
Even when the general level of rates is high, there are strategies to secure the best possible deal. Reducing your loan-to-value ratio is one of the most effective approaches. If you have savings that you could use to make a lump sum payment on your mortgage before remortgaging, this could push you into a lower LTV bracket and unlock a better rate.
For example, if your mortgage is 162,000 pounds and your home is worth 200,000 pounds, your LTV is 81%. Paying off 2,000 pounds to bring the balance to 160,000 pounds would move you to an 80% LTV, which typically qualifies you for noticeably lower rates. These LTV thresholds — 90%, 85%, 80%, 75%, 60% — are important tipping points in mortgage pricing.
Shopping around is more important than ever when rates are high, as the spread between the best and worst deals tends to widen. A mortgage broker can be particularly valuable in this environment, as they have access to deals from across the market and can identify lenders offering the most competitive rates for your specific profile.
The Danger of Doing Nothing
The biggest risk when rates are high is inertia. Many homeowners put off remortgaging because they are unhappy with the rates on offer, hoping things will improve. But while they wait, they are often paying an even higher rate on their lender's SVR. This wait-and-see approach can cost thousands of pounds over the course of a year.
If you genuinely believe rates will fall significantly in the near future, you could consider a shorter-term deal — such as a two-year fix or even a tracker with no early repayment charges — that allows you to reassess relatively quickly. This way you are still paying less than the SVR while keeping your options open.
The worst outcome is to do nothing at all. Even in a high-rate environment, the gap between the SVR and the best available deals is usually substantial enough to justify the effort of remortgaging. Take action, even if the deals available are not as attractive as you would like them to be.
Important: Your home may be repossessed if you do not keep up repayments on your mortgage. There will be a fee for mortgage advice. The actual rate available will depend on your circumstances. Think carefully before securing other debts against your home.