The silent cost of waiting: How delaying your mortgage application can affect affordability

It can be difficult knowing when it’s the right time to sign up to a fixed rate mortgage offer, as you can’t be sure if rates will be more favourable in the future.

However, waiting might not be the most advantageous decision for you. In this article, our expert team of experienced mortgage advisers at PIL Southampton looks at why.

If it looks like interest rates might be about to drop, should I wait before I apply for my mortgage?

It sounds like waiting for better rates to be available would be a good idea, but you might be surprised to hear that waiting usually doesn’t benefit you.

This is because of the way mortgage pricing works, which particularly affects fixed rate mortgage products.

Fixed rate mortgages

Unlike variable rate mortgages, which are directly linked to the Bank of England base rate, fixed rate mortgage pricing is generally based on market forecasts and expectations of interest rate movements over the term of the fixed rate deal – anywhere between two years and 10 years. 

And, it’s important to note that lenders don’t update their rates as soon as market conditions change. Changing their product offers involves a lot of work behind the scenes; IT platform updates, risk reviews, internal sign-off, literature updates, strategic planning and so on.

All this means it can take weeks for reduced rate products to come to the market, and the change might not even be dramatic enough to make a significant impact on your financial circumstances.

Tracker rate mortgages

If you are looking at a tracker mortgage, there’s no need to wait for a rate decrease – they happen automatically as they are directly linked to the Bank of England base rate, so you benefit from a rate reduction almost immediately. Of course, this does work both ways and any increase in the Bank of England base rate will also take effect soon after.

Variable rate mortgages

Standard variable rate mortgages and discount rate mortgages are more of a grey area. Their rates are set by lenders and, whilst they tend to follow the Bank of England base rate, the lender may choose not to adjust their rates in line with Bank of England rate changes for weeks or months, if at all. Their decisions will depend on their business strategy, internal margins and funding costs.

What happens if my lender reduces their rates before my mortgage completes?

Depending on your particular lender’s policies, you may be able to benefit from their new lower rate. 

The best case scenario is that they automatically apply the lower rate to your mortgage offer if it hasn’t completed yet.

Alternatively, they might allow you to move to the lower rate but this may involve them issuing a new mortgage offer, which could delay completion.

In some cases, a lender might require you to submit a brand-new mortgage application. This would mean going back to the start of the process and could involve a new credit check and an updated affordability assessment.

If the mortgage rate falls before I complete my mortgage, should I change to the new rate?

Although it sounds like a no brainer to switch to a lower rate, there are other factors you need to consider.

1. If you need to freshly apply for the lower rate mortgage this could delay your completion and potentially jeopardise your property purchase.
2. If you have had any significant changes in your financial circumstances since you first applied for your mortgage, like new debts or a different job with a lower income, then this change in affordability could affect your chances of getting your mortgage approved.
3. A new application could mean going through a fresh, comprehensive credit check.

What can I do if fixed rates go down soon after I have accepted my fixed rate mortgage offer?

Even if you secured your mortgage several months before rates go down, you still have options.

Ideally, your lender will allow you to switch the lower rate without repeating any steps of the mortgage process.

Alternatively, if lower rates are now available across the marketplace, it could be worth you withdrawing your mortgage application and applying with another lender who has a more attractive rate.

Another option is to see if there is a new product you could transfer to with your existing lender. This could be more cost-effective than a full remortgage with the fees and charges that may apply.

What is the downside of waiting for rates to drop when I’m remortgaging?

When you are coming to the end of your fixed rate mortgage term and you’re looking to remortgage, the cost of waiting to secure your new deal can be particularly impactful.

This is because, if you wait too long and you run out of time to get a new deal in place before your current term runs out, your rate will automatically switch to your lender’s standard variable rate. This will generally be significantly higher than the new fixed rate deals on the market, and so it could make a big difference to your monthly repayments.

Also, if you wait until you’re near the end of your current fixed term, you could miss out on the benefits that come from shopping around with other lenders.

Is it ever a good idea to wait to apply for a mortgage?

In most cases, the answer is no. We would advise you to apply sooner rather than later so that you can secure your mortgage offer in good time and have the best chance of getting the most advantageous deal for you. This way, you have the peace of mind of having a mortgage in place, but you can also keep your options open. Plus, you will have the flexibility to change your deal if a better option is available in future.

How PIL Southampton can help you 

Our specialist team of independent mortgage advisers has access to all the deals available and can quickly compare rates across multiple lenders, as well as associated fees and conditions to make sure we are giving you the full picture when you are reviewing the best option for you. 

As a broker, we also receive advance notifications on lenders’ rate changes, which means we can act quickly to highlight the best deals to you. And we sometimes get exclusive deals not available on the high street, which means that we can potentially get you a better rate than if you went to a lender direct.

How you can contact PIL Southampton

You can email us, fill out the contact form on our website or call us on 02380 668407. We look forward to hearing from you.