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More than 1.5 million homeowners are due to renew their mortgage this year and most are facing big jumps in their repayments.

The Bank of England base rate is sitting at a 16-year high of 5.25%, with a first cut expected (by markets) in early summer. Even if it does fall, it will still be higher than when mortgage holders fixed their last deal two or five years ago in the era of ultra low rates.

What options do people renewing have?

Broadly there are four routes people can take, according to David Hollingworth, an associate director at L&C.

1. Allowing your mortgage to automatically drop on to your lender’s standard variable rate (SVR) for a few months to see if rates drop in the next few months – then securing a lower fixed rate than currently available.

For a while at the start of 2024, high street lenders were cutting rates amid optimism about inflation. But with the BoE maintaining its cautious language, Mr Hollingworth says rates may have bottomed out for the time being.

The reason this route often isn’t recommended is that SVRs can be in excess of 8%, so even if fixed rates do drop, borrowers risk paying much more in the meantime by loitering on the SVR.

2. Trackers follow the Bank rate (currently 5.25%) plus a fee, often an additional 0.5%. So if markets are right and cuts are on the way, mortgage payments will reduce. 

There are a few things to consider, Mr Hollingworth says.

First, people need to have some capacity to deal with higher payments if rates don’t come down – or climb again.

Next, “as base rate has yet to move, the initial rates will be higher than corresponding fixed rates”.

3. Tracker – but switch to fixed when you think the moment is right. Many trackers can be found without any early repayment charge, so you could take one hoping to follow rates down and then switch to a fixed deal when you think/hope rates have hit a low.

This comes with the same caveats as number two, plus, Mr Hollingworth says, “there’s also potential to end up paying an arrangement fee to switch to a tracker and then another to move to a fix at a later point… that could erode any benefits.”

4. Shop around for best fixed rate. This is the route Mr Hollingworth expects a majority to take as things stand. As discussed, competitive rates are now on offer to people re-mortgaging as well as home buyers.

At Legal & General, Kevin Roberts says several mortgage lenders will start to offer appealing product transfer rates six months before the current deal expires – these can be locked in with the knowledge that the rate can be adjusted if the market moves.

It is also important that people factor in fees here.

In summary?

“The era of ultra-low interest rates is probably over for the foreseeable future,” Mr Roberts says. “Adapting to the new normal is key. 

“Homeowners must take a forensic approach, exploring all available avenues on the length of a new mortgage term, capital repayment plans, and the possibility of switching from their current lender, if appropriate. 

“Ultimately, everyone should seek independent mortgage advice, wherever they stand on the property ladder. 

“Advisers are best placed to guide buyers toward the optimum solution for their individual needs and circumstances, and an adviser can normally source offers not available directly to borrowers.”