As the Bank of England raises interest rates again to 4% - the highest level for more than a decade - we offer some tips for making your monthly mortgage payments a little more manageable.
For many of us in the UK, the monthly mortgage payment is our biggest outgoing – a cost that is going up. According to the Office for National Statistics, 1.4 million mortgages on cheap fixed rates are due to expire this year, and those who need to remortgage will find themselves paying considerably more each month because interest rates have risen in the interim.
If your mortgage deal is coming to an end, it makes sense to tackle the issue head on, so that you can get ready for what is coming and get the best rate possible for you.
Get a date in the diary
Do you know when your mortgage deal ends? If you have a nagging feeling it might be in the next year or so, it is worth finding out the exact date. Even if it isn’t immediate, make a note in the diary now – and tackle the mortgage half a year before your current deal actually ends.
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This may seem far too early. But Louis Mason, from mortgage adviser Oportfolio, says that early planning gets you a better deal.
“You can start to look at restructuring your mortgage with an advisor six months before your deal is due to end,” he says. “This will give you plenty of time to make sure that you get the best deal possible.”
While you’re diarising, check what mortgage rate you are on now and also your lenders’ Standard Variable Rate (SVR), which is the rate you will move onto if you do not sign up for a new mortgage deal. These can be very high – for example Barclays’ is currently 6.49%. Nationwide’s, which is called the Standard Mortgage Rate, is 6.99%, so it is sensible to ensure you do not end up paying these rates by getting a new deal before yours expires.
Do general research
Once you know how much time you have, you can investigate how much more you will have to pay.
“Chances are that your new rate will not be as low as before, but switching to a new product in most cases is still preferable to staying with your current mortgage lender on their standard variable rate,” says Mason, at Oportfolio.
Websites like Moneyfacts can give you an idea of the rates available, whether you choose to fix your mortgage for a number of years, or if you choose a tracker mortgage where the interest rate changes whenever the Bank of England changes interest rates.
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A mortgage calculator (see link below) can show what your monthly payments would be on each new deal.
You’ll need to have some idea of your loan-to-value, which is the ratio between what you owe on your mortgage and what your property is worth. It’s usually expressed as a percentage, and you can find yours by dividing your mortgage amount by your property’s value and then multiplying this by 100. The better the ratio, the better the deals you can get.
Check your credit file, too. The best deals are available to those with good credit histories. Write to credit companies to amend any mistakes.
“Close down any old or unused credit facilities,” advises broker Richard Campo from Rose Capital Partners. “If you have five credit cards that you never use, lenders can be nervous about your ability to ramp up your debts post-completion.”
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Making an appointment to speak with a mortgage broker will give you more information on the deals that could be available to you.
Many brokers will be free for you to use, as they receive commission from a lender. You can find one near you on the Personal Finance Society website.
Consider affordability
Once you know how much higher your repayments are likely to be, you need to consider if you can afford them. Strict budgeting may be necessary, and it will be helpful if you have several months to prepare.
If they look unaffordable, you may need to ask a lender to look at lengthening the term of a mortgage, so that you pay it off over a longer period (although this will be more expensive in the long run) or consider additional ways to earn income such as renting out a driveway, or a spare room.
Reserve, but keep checking
Ask your mortgage broker whether you can reserve a deal, but have some flexibility to cancel it. Mortgage rates are still changing. They rose high after Kwasi Kwarteng’s mini-budget, but have fallen since thanks to increased stability. They could fall further.
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Sometimes you have to pay an arrangement fee at the time of reserving a new mortgage, but if you opt to add it to the mortgage itself then you should have nothing to pay if you cancel later because a different deal comes along. Check with your broker before doing this though.
If you can’t afford the payments
If you can’t afford higher mortgage payments or get into arrears, you need to get help. The Government’s Money Helper site has links to schemes, but your current lender should also help if you call them and explain.
“Lenders have a duty to act fairly with customers who are having difficulties,” says Karen Noye, mortgage expert at wealth manager Quilter.
“Lenders might be able to put you on a payment plan based on what you can afford to pay back.”
A period of rising interest rates is scary after such a long period of relatively low rates, but following our tips should help you be better prepared. And let’s take comfort from the fact that some pundits are predicting that rates may have peaked.
Useful Links
Oportfolio
Moneyfacts
Mortgage calculator
Rose Capital Partners
Personal Finance Society
Rent out your driveway
Rent out your spare room
Money Helper
Quilter
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