Inflation remains stubbornly high, and interest rates have gone up. What can you do if you’re worried about higher mortgage payments? MB Associates Sales Manager Phil Leivesley has some advice.
What if your fixed-rate mortgage deal ends this year?
Many people are coming to the end of their fixed rate this year and in the early part of next year. Where many previously thought that high inflation would be transitory, it now seems widely accepted that it will stick around for a little longer.
This means that the cost of borrowing will remain high for the foreseeable future, and, for the time being, mortgage rates are still increasing constantly. If you’re within six months of the end of your current initial term, I’d recommend securing a new mortgage rate as soon as possible.
What will happen to the cost of borrowing in the short term?
Unfortunately, we need to accept that the cost of borrowing will remain high and potentially may continue to increase over the coming months. So my advice to anyone whose deal is coming to the end of the current fixed term is to seek advice and speak to a mortgage professional.
What about shopping around for a better deal?
Most borrowers will be offered a retention rate from their existing provider. While it’s quick and simple to switch from one deal to another with the same lender, there’s a chance that you could save money if you move your mortgage elsewhere. So do reach out, speak to a mortgage broker, explain the deal you’ve been offered by your current lender, and they’ll be able to search the market for a cheaper product.
What if you’re worried about payments going up now?
Again, speak to a broker. You might be on a variable rate and while that flexibility might be important to you, you can discuss the pros and cons of that approach. It may be worth you securing a fixed-rate deal so that your payments won’t change for a period of time. Speak to a broker who can tell you about the implications of a decision that you decide to make or not make.
Are there any ways to minimise an increase in monthly payments?
I’ve had many conversations recently with clients who are coming to the end of a fixed-term deal and finding that their interest rate will increase from below 2% to over 5%. Such a jump in rates will almost certainly lead to an increase in monthly payments. However, there are some potential solutions to mitigate that increase. One is to extend the term of the mortgage. This will slow the rate at which you reduce the mortgage balance and lead to you paying more interest overall, but it can help to keep a lid on your payments.
You can potentially also switch to an interest-only mortgage, where you stop paying the capital balance down and just maintain the interest. Interest-only mortgages have very specific qualifying criteria and aren’t available to everyone, and you have to have a robust plan in place to make sure that you can repay the mortgage by the end of the mortgage term.
Again it’s about seeking expert advice – speak to a specialist mortgage broker and just have that conversation with them. They’ll present the options to you and give you the advice you need.
What advice do you have for first-time buyers?
I have a great deal of empathy with first-time buyers who might have been saving for a long time and have found the market change just as they were ready to purchase. My advice would be not to be deterred by what you might read in the media, especially if you have a decent deposit. If you’re currently renting, your monthly costs might be increasing anyway, and mortgage payments may still work out to be cheaper.
Increasing interest rates will put pressure on house prices, and whilst a chronic undersupply of properties will prevent a large crash, there might be an opportunity to negotiate on the price of a new home. So negotiate hard, don’t pay a penny more than you need to for the property, and speak to a broker to make sure you know exactly what your costs will be.