In 2023, the average monthly mortgage payment for 4 million homes in the UK is anticipated to rise from £750 to £1,000. The Bank of England’s base rate, which increased nine times to 3.5% in the year ending in December 2022 and is predicted to reach about 4.5% in 2023, has a direct impact on the lending rates charged by banks. Because banks add a premium to account for the danger of borrowers not repaying their mortgages, mortgage rates are considerably higher than this base rate. In early 2022, mortgage rates were 1.9%; today, they hover around 6%.
The effect of this move is already being seen by households with variable-rate mortgages, which adjust as the base rate rises. However, the current mortgages for about 1.8 million households with fixed-rate mortgages will expire in 2023. They will experience an even bigger shock because their payments will almost immediately increase. Hence property experts including estate agents in Winchester say that understanding how mortgage payments operate is crucial for people searching for a new arrangement or attempting to refinance, as mortgage costs currently account for 22% of the average UK household budget. This could lessen your repayment strain in addition to assisting you in selecting the ideal arrangement.
Here are five methods for easing your mortgage burden.
Take a look at your mortgage alternatives
There are many things you may do to temporarily alleviate the effects of the present economic crisis, but always remember to consult your lender about the costs associated with any modifications.
To provide you some short-term flexibility, you may temporarily change to interest-only repayments, but you still need to make plans to pay back the cash you borrowed. Or you might lengthen the duration of your mortgage to pay less each month but over a longer time frame. For instance, John’s capital repayment would decrease from £259 to £177 per month if his term was increased from 19 to 30 years.
While borrowing rates are high, you might also use some savings to lower the amount of your loan. If you can put down a 25% deposit, the interest rate will likely be lower than if you must borrow 90% of the purchase price of your home (i.e., you have a 10% deposit). Additionally, once you have a mortgage, paying more than what is required will lower your interest costs.
Avoid using the fixed rate option.
Your mortgage typically switches immediately to the lender’s normal variable rate after your fixed-rate period expires, which is frequently the highest rate paid. To prevent this, try to negotiate a new contract before your existing rate expires.
Hold onto your help-to-buy loan.
If you purchased your property using the government’s help-to-buy programme, which is no longer open to new borrowers, it would be wiser to hold onto it rather than switching to a different mortgage company after the interest-free period expires. This is due to the fact that the interest rates imposed by these schemes are presently substantially lower than those of the mortgage market. However, talking to someone is usually the greatest thing you can do, particularly if you’re having financial difficulties.
Consult a mortgage advisor
Independent mortgage advisors frequently have access to mortgage rates that are more favourable than those that are, for instance, offered to the general public online or by a high street bank. A 5% rate instead of a 5.25% rate, for instance, would save you about £500 per year on a £200,000 mortgage over 20 years.
Consult your lender
Last year, a lot of UK banks made commitments to relieve pressure on distressed mortgage borrowers. This means that if you are having financial difficulties or are concerned about your finances, your bank might be able to assist you in switching to a better arrangement without requiring you to, for example, through another affordability test.
Keep an eye on your funds so that your bank is aware that you are concerned. Even though it’s ideal to raise the issue before you miss a payment, you can still get assistance and guidance from your bank or other organisations like Citizens Advice if you don’t.