It has been a rollercoaster ride for mortgage rates over the last year, with rise after rise of the Bank of England base rate to try and combat inflation, it comes as no surprise that many of us are struggling to keep up with the rising cost of being a homeowner.
For those on a tracker mortgage or an SVR (standard variable rate) mortgage, you will be all too familiar with the increase in your mortgage payments, with the base rate reaching 5%, but for those on fixed rates, of which there is expected to be around 1.6 million coming to an end by December 2024, the shock of what you will be expecting to pay once you remortgage is all too real.
Why Are Mortgage Rates Rising So Fast?
The Bank of England’s Monetary Policy Committee set the base rate to try and keep inflation at its 2% target, however, over the past year we have seen a huge spike which has seen the figure skyrocket into double figures, to 8.7%. Now out of the double-digit territory, the decrease hasn’t been as steep and as fast as hoped.
The base rate currently sits at 5%, the highest it’s been since 2008 and what’s more, the Bank of England is forecasting further rises, with some economists and market commentators stating it will peak as high as 6%. The continuous base rate rise has pushed mortgage costs through the roof with the average 2-year fixed rate reaching 6.3% on 28th June and the average 5-year fixed reaching 5.91%.
Bank of England data showed mortgage arrears in the UK reached £14.9 billion in the first quarter of 2023, accounting for 0.89% of outstanding mortgage balances. Over the year to date, the total has increased by 12.5%, highlighting the amount of pressure borrowers are under.
We understand the worry and struggle these rising costs bring, however, there are ways to make the rising costs a little easier to handle.
Tips to Cope with Rising Mortgage Costs.
Speak to your mortgage advisor as soon as possible.Speaking to your mortgage broker early will give you a better chance of withstanding price rises. Households are being hit with rising mortgage costs and a cost-of-living crisis, so cash flow is strained for the majority. If you have missed a payment or think that you will, speaking with your mortgage broker can help you to budget and get the best idea of options available to you. Checking your insurance policy is also advisable as some include mortgage coverage under certain circumstances.
Switch to interest only.By switching your mortgage to pay interest only, you will stop paying down the size of your mortgage, which will reduce your payments in the short term. This is a great option to help with money right now but shouldn’t be prolonged as you will end up paying the remaining mortgage balance at the end of your mortgage term.
Request a mortgage holiday.Mortgage payment holidays, or payment deferrals allow homeowners to temporarily stop or reduce their monthly payments. Banks were offering deferrals to anyone requesting them during the pandemic, however, since then, banks are no longer required to offer them, but those struggling financially right now can speak to them and request one. It is worth noting that payment will be more expensive once the holiday ends, to pay back the mortgage by the end of the term.
Overpay if possible.Most lenders will allow up to a 10% overpayment per annum, which means that if you still have time left on your fixed-rate deal this could be a viable option for you. Another option is putting money into a savings account which can build up and earn interest to help pay down some of the mortgage, before fixing a new deal.
Downsize.If you are in the right stage of life, downsizing may be a good option to reduce your monthly payments, or in some cases, pay it off entirely. If you are older, and your children have flown the nest, opting for a smaller property could help financially.
Extend the length of your mortgage.Extending the length of your mortgage will help to reduce your monthly payments, for example extending a 25-year mortgage to a 30-year term, however, banks generally don’t offer mortgages of more than 40 years. For fixed-rate deals, this usually needs to be done at the point of remortgaging, and although the initial monthly cost is reduced it usually means a higher cost in terms of interest payments.
New Measures Introduced to Help with Payment Difficulties.
There have been new measures introduced to help those struggling with rising mortgage payments, these include:
- Fixed-rate customers will be able to lock in a new deal up to 6 months ahead and be able to apply for a better deal up until the new deal starts.
- You will be able to switch to an interest-only mortgage for 6 months or extend your mortgage term and switch back within the first 6 months, without an affordability check or affecting credit scores.
- Homeowners will not be forced into repossession within 12 months of a payment being missed.
- Credit scores won’t be affected by contacting mortgage lenders for support.
- Support will be given to switch to a new mortgage deal, if homeowners are up to date with payments, at the end of an existing fixed-rate deal without another affordability check.
Help and Advice from Manchester’s Leading Mortgage Broker.
We understand the difficulties you are facing and with so much information out there, it’s difficult to know where to turn. At TaylorMade, we are mortgage advisors that can provide professional, independent mortgage expertise and helpful advice on the best deals on the market today and which are best suited to your specific circumstances.
If you’re seeking financial help through this turbulent time, our friendly team are here to help. Contact Manchester’s leading mortgage broker today.
