The base rate going up to 5% has shocked many and, of course, means that many people will face higher payments on their mortgages. Here are some key things to consider if you’re worried about rising costs…
The recent base rate rise from 4.5% to 5% by the Bank of England has resulted in many people feeling concerned about their mortgage payments. According to the search engine Twenty7tec, remortgage searches have increased by 38% since the base rate increase was announced on 22 June.
‘The Bank of England’s base rate increase was widely anticipated, but the shift from 0.1% to 5% within 18 months will still shock many,’ says MB Associates’ Sales Manager Phil Leivesley. ‘Homeowners and landlords will be understandably concerned about the rise in mortgage payments alongside the wholesale increases in other costs, particularly those who are subject to a fixed rate which is due to end soon.’
If you’re worried about your mortgage payments, or you’re due to remortgage later this year, and you’re concerned, here are some useful tips…
If you’re due to remortgage this year
Seek expert advice from an experienced mortgage broker immediately. Even if your current fixed-term rate isn’t due to end until the latter part of this year, acting now could prevent you from paying more later on. It seems likely that the cost of borrowing will continue to rise in the coming months, and you can usually fix a new mortgage deal up to six months before your current term expires. Even though the new deal is very likely to be more than you’re currently paying now, it could help you avoid further rate rises. In addition, you can opt out of a deal you secure now if rates improve before the end of your term.
If you’re currently on a very low fixed-rate deal, and you’re worried about your mortgage going up in the next year or two, start making arrangements now to help you manage the situation later on. ‘Some borrowers have either started making monthly overpayments to their mortgage or putting an amount of money each month into a savings account to replicate potential future higher payments,’ says Phil. ‘This will help with budgeting when and if they were to switch to a higher interest rate. This might not be achievable for everyone, but if you are able to make overpayments, you will reduce the amount of interest charged against your current mortgage now and in the future.’
If your monthly payments have gone up
If you’re on a tracker or standard variable rate mortgage, your monthly payments will have increased. If this means you’ll be struggling to pay your mortgage, again, it’s imperative to seek advice immediately, as there may be a solution to help you cope. ‘There are some potential actions you can take to extend the mortgage term or move some or all of your mortgage onto an interest-only basis,’ says Phil. ‘These options might not be optimal, so it’s important to understand the implications of decisions like these, and therefore advice is critical.’
If you’re a landlord
You may have found that the rent you’re charging on a property is less than the monthly mortgage payments. In this situation, you could raise the rent you’re charging your tenants but bear in mind that if they can’t afford it, they may choose to move out, which will lead to a short-term financial setback while you find another tenant.
You may wish to subsidise the shortfall between the rent received and your mortgage payments if you’re committed to letting the property for the long term, or you might be able to overpay a lump sum to reduce the mortgage balance and reduce any monthly shortfall. If you aren’t willing or able to do either of these things, you may need to consider selling the property.
If you’re buying your first home
If you’re a first-time buyer hoping to get onto the property ladder, it’s crucial to seek advice from a broker who can advise you on the best mortgage type and term to suit you.
It’s worth haggling on price with a vendor when you find your desired property so that you don’t have to pay a penny more than you need to. Don’t be afraid to negotiate and make an offer.
Finally, try to put down as much deposit as possible so that you only borrow what you need. The less you can borrow, the better. Parents or grandparents may be prepared to chip in and help towards the deposit during these challenging times.
Good advice is crucial
Speaking to an experienced mortgage broker is crucial because they can help you plan long-term, especially if you’ve been on a low rate for a long time. ‘A broker will be able to help you navigate what might be the first increase in your payments for over a decade,’ says Phil.
Extending the mortgage term, if you can, might be a solution. This will bring your payments down, and while you’ll pay more interest in the long term, it may be the right solution in the short term.
We’re here to help if you need mortgage advice.