As a prospective or current home owner, you want to make sure you get the most out of your mortgage – and, for most people, that means securing the lowest interest rate you can for as long as possible.
But, with interest rates rising across the globe and a soaring cost of living crisis, you may be among the many borrowers starting to wonder how your monthly payments will be affected – whether you’re looking for a new mortgage or to lock in a new fixed term rate on an existing one.
At times of financial uncertainty, it’s important to make sure you’re clued up and ready to act. That’s why we’re here to explain how all of this comes together.
How do interest rates affect borrowing?
It’s no secret that the cost of living is rising all the time. The Bank of England base rate has been raised from 0.75% to 1%, the highest it’s been for 13 years. But what does that mean for mortgage payments?
Well, of the third of UK adults to have a mortgage, three quarters are on a fixed rate – which means they won’t see a change to the price they’re paying until it’s time to remortgage. For those on a typical tracker mortgage or standard variable rate mortgage, however, monthly payments will increase by about £25 and £16 a month respectively.
But the most important thing to recognise, regardless of mortgage type, is that these rising costs aren’t going anywhere anytime soon. And, as borrowers start clamouring to lock onto lower mortgage rates while they still can, lenders will struggle to keep up the demand.
That means it’s more important than ever to be proactive when it comes to your mortgage.
What can you do to combat high rates?
Firstly, don’t hang around. If you’ve got an existing mortgage, you’ll need to get the ball rolling six months before your fixed term ends to be in with a chance of locking in a lower price. Knowing which lender or deal to go with can be confusing, though – which is why we always recommend speaking to specialists like us, first. It’s a big decision that could save (or cost) you thousands of pounds, and there’s no need to make it alone.
Secondly, as homeowners try to secure lower monthly payments for as long as possible, longer-term fixed rate mortgages have shot up in popularity. In fact, analysis of remortgaging activity across 2021 showed 52% of people who remortgaged took out a five-year fixed rate product, making it the most popular option.
That makes sense: if prices are only going up, why fix your payments for two years, when you might be able to secure them for five, instead? Think about how long you’re planning on staying in your home, and whether it’s worth fixing for longer than you would’ve done previously.
There are lots of different types of mortgage available (from two years up to ten years, trackers and even interest only) and rates can vary dramatically, so it’s important to seek advice as soon as possible to work out what suits your circumstances best.
Then, even if you’ve got a while left on your existing mortgage, consider whether it’s worth paying a fee (known as an early repayment charge or ERC) to leave that mortgage and secure a new one at a low rate. You’ll need to weigh up your options carefully, but, as ERCs are calculated based on how long is left on your mortgage, it might be worth paying a few hundred pounds sooner to save thousands of pounds later down the line.
Finally, make sure you look into protection insurance for your mortgage. If you are unsure how you will make your repayments due to an inability to work, protection insurance is there to cover the cost of your mortgage payments. You can apply for it if you are employed, self-employed or a contract worker, but there are some exceptions.
How we can help
No matter your circumstance, whether you are a first time buyer, moving house or looking to lock in a longer term mortgage, we’re here to help you navigate what can be a difficult and stressful decision – and save some money over time.
We make the process as straightforward and efficient as possible – using Zoom to do things digitally, and giving you a mortgage portal so you can keep up to date with exactly what’s going on.
To book a session with our experienced mortgage advisers, get in touch today.