With the bank base rate at its highest for 15 years, we have heard of eye-watering increases in people’s monthly mortgage costs.
And with such scary news stories, if you still have a little while to go before you have to re-mortgage, you might be tempted to hold off until the last minute to find out how much extra you might have to pay.
However, one of the best ways of managing your mortgage increase is to identify the additional payments as soon as possible so you can make a plan. And because you can ‘lock in’ rates up to six months in advance, acting sooner rather than later may be the best move.
Here are our 3 top tips to help manage any rise in mortgage payments:
- Speak to a broker or your lender at least six months in advance – you can lock in deals early with some lenders.
In the past, contacting a lender or broker up to three months before you were due to remortgage would generally be enough time to get a deal in place. However, it’s now well worth contacting them six months before your current mortgage expires, as you can lock in a deal that far in advance.
With rumours that rates could rise further this year (5.25% as of Aug 2023), this could potentially allow you to fix at a lower rate than would be available six months from now. And because mortgage deals are going very quickly – with some being pulled by lenders at a few hour’s notice – it’s worth acting quickly, as good mortgage rates you can access now might not even be available in a few weeks or days.
- Speak to both your lender and a broker
We are finding that, in some cases, lenders offer deals to existing customers that may not be available if you switch to a new mortgage or are looking to come off the Standard Variable Rate (which tends to be the highest rate charged by a lender).
However, regardless of how good the deal your current lender offers seems to be, it’s well worth speaking to a broker that can check all the mortgage products available to you, as there may be an even better option out there for you.
- Ask what help your lender can give you if you are struggling with the new rates
Currently, the base rate is 5.25%, with some predicting it could go up as high as 6% or more (Schroders).
So, if you are on a Standard Variable Rate or Tracker and are already struggling to pay the rising mortgage costs, do contact your lender or broker right away.
If you’re worried about the possibility of losing your home – and there has been a lot in the media about repossessions rising – rest assured that this is the last thing your lender wants to do. Most lenders have already committed to not taking any action to repossess your property for 12 months, so at the very least, you are likely to have some breathing space to get your finances in order. And lenders can also do a number of things to help reduce the amount you have to pay each month:
- Move you from repayment to interest only. This will cost you more in the long run in interest accrued on the outstanding loan, but if you have a £200k mortgage with 20 years left, your monthly payments could reduce by c£450 per month by moving to an interest-only mortgage. And if you only do this for six months, it won’t affect your credit rating.
- Your loan term can be extended. In the past, 25 years was the standard time period over which a mortgage would be paid back. However, we are all living a lot longer and expected to work for longer, too, so if it helped to bring down your mortgage costs until rates come down – which they are forecast to do in 18 to 24 months – extending your loan term could help you through this tricky time.
As an example, if you have a £150,000 mortgage at a 6% mortgage rate, extending the term from 25 to 35 years will reduce your monthly payments from £966 to £855, a saving of £111 a month. (using BBC calculator)
However, these calculations are very individual to each person, so do ask for figures for your own mortgage from your lender and/or a broker.
- Mortgage payment holidays. If necessary, just like during the pandemic, you may be able to take a ‘holiday’ and stop paying your mortgage altogether for a number of months. This will depend on your lender and you will also need a plan to pay back the increased amount of money you will owe on your mortgage through accrued interest.
- New mortgage deals without affordability checks. Some lenders may offer you a new existing fixed-rate deal without requiring another affordability check, but you will need to be up to date with your current payments.
Essentially, lenders and brokers are here to help you stay in your property, so do contact them and they will find a way to try and help you. And remember, getting initial advice and support from your lender and a broker doesn’t cost you anything.
- Support for Mortgage Interest. The government introduced this scheme during the last property slump in 2007/8 and it can apply not only to your mortgage but also to any loans you might have taken out for certain repairs and improvements to your home.
It applies to loans of up to £200,000 although the support will only be for £100,000, and you typically need to be receiving one or more of the following benefits:
- Income Support
- income-based Jobseeker’s Allowance (JSA)
- income-related Employment and Support Allowance (ESA)
- Universal Credit
- Pension Credit
Even if your income is too high to be eligible for benefits, you may still be able to get help, so it’s worth asking. For more information, including how to apply, visit https://www.gov.uk/support-for-mortgage-interest
How can people afford to pay the extra mortgage costs?
Paying much more on your mortgage might be a scary prospect, but two key things have happened over the last few years that should mean it’s still possible for you to afford your new monthly payments:
- Equity in property has risen for many people
If you have owned a property for more than five years or even if you bought during the pandemic, the good news is that most properties have risen in value. In addition, as you will likely have been on a repayment mortgage, you will have paid off some of the capital, increasing your equity further.
So you might find the amount you owe versus the current value of the property is now lower than when you first took out the loan. This lower ‘loan to value’ percentage can give you access to better interest rates than would be available now if you still had the same loan to value.
- Wages have risen
Although this hasn’t happened for everyone – and, of course, the cost of general living has risen – average weekly earnings have gone up by 24% over the last five years and by 12% in just the last two years. While you may still have to cut back on holidays and going out, and put off buying a new car, if that increase in your earnings means you can afford your new mortgage payments, it’s worth making sacrifices over the next few years to make sure you can stay in your home.
At Mortgage Scout we are here to help. Most who call us are given better news about their new mortgage rate than expected. Just get in touch for a free appointment and we will do everything we can to help.
By Sarah Thompson, Managing Director, Mortgage Scout