Home owners throughout the UK may be about to learn a harsh lesson – that low interest, fixed rate mortgages may not be as good as they first appear. With hundreds of thousands of property owners about to remortgage their homes after their fixed rate mortgage term has expired, a reality check on a mass scale may be on the cards.



Home owners and property investors have experienced a lengthy period of historically low interest rates for the last few years. Mortgage lenders have cashed in on the good times by issuing record numbers of mortgage and remortgage products to borrowers. Home owners have also benefited through low monthly repayments on their mortgages.

Many of these products, however, were issued with short term, fixed interest rates attached to them, many of which are due to expire soon. A typical mortgage product offered several years ago may have seemed enticing with its sub five per cent interest rate, however, most borrowers who opted for such mortgages failed to consider what will happen when they are due to remortgage to a new product.

While still historically low, interest rates have risen considerably in recent years and because of this property owners who are due to remortgage their home loans face the prospect of a large increase in their monthly repayment amounts. This is a daunting prospect for many home owners throughout the UK.

As the term of their favourable fixed rate mortgage expires, borrowers are usually able to remain with the same product instead of remortgaging, however this will entail falling under the lenders' Standard Variable Rate (SVR) which is normally higher than fixed rate deals offered by the same lender.

Instead, borrowers must remortgage to a new product. Because interest rates have risen so much recently it is almost inevitable that borrowers will be forced to sign up to a remortgage product with a higher interest rate than their previous deal. This may still be the best option for most borrowers as lenders' SVRs can be difficult to afford.

In addition to paying a higher interest rate, even if the product the borrower remortgages to has a fixed rate, lenders and mortgage brokers may also charge the property owner with fees and charges.

Some mortgage brokers do not charge a fee to their customers and are happy to earn a living from the procuration fees paid by the lenders, however some do, so it is wise to shop around.

An increasing number of mortgage lenders charge application fees to their customers and it can be difficult to find a one that doesn't. The size of the fee will usually depend on the lender and can also depend on the credit worthiness of the borrower. The lower your credit score, for example, the higher the application fee on a remortgage can be.

Home owners should therefore consider their remortgage position in several years time when applying for a mortgage with a short term fixed interest rate. While it can save money in the short term, the remortgage can cost thousands of pounds.