The
Mini Budget’s aftermath, coupled with the pound’s decline, led to sudden
changes in the mortgage market. Many lenders withdrew their offers
unexpectedly, leaving borrowers uncertain. Although lenders have resumed
operations, borrowers now have fewer options and must contend with
significantly higher interest rates.
This
situation has been problematic for prospective homebuyers and those looking to
remortgage. Those who hadn’t completed their applications were confronted with
costlier agreements.
An
increase on the Bank of England Base Rate makes borrowing costs and debts cost even
more. An increase in the base interest rate has seen credit card debt cost more
with pain for all borrowers and more profits for lenders.
More and more mortgages are falling into arrears as mortgage repayments become even more unaffordable due to higher interest rates and the cost of living. Unfortunately, the situation may worsen as more borrowers fixed-rate mortgage deals expire.
While these borrowers have benefited from low rates over the past few years,
current credit costs will be a financial challenge and prevent them from
securing low competitive rates when they remortgage.
With
my own fixed rate mortgage ending soon, I’m faced with my monthly mortgage bill
soaring to almost double the amount. I’m now in the process of arranging a new
mortgage deal and face the difficult decision over what to do next.
So, what mortgage options do you have if your current
mortgage deal is ending soon?
1.
Switch Mortgage Deals
With higher interest rates it’s becoming increasingly common for mortgage holders to incur exit fees and transition costs to leave their current agreements and lock in a new fixed-rate contract for a longer duration.
This move does come with immediate financial discomfort, as the new interest rate will undoubtedly be higher than their existing one. This results in a higher monthly mortgage payment, coinciding with a period where many are already feeling the strain on their household budgets due to the UK cost of living.
Additionally, there are early repayment charges to consider. These fees are based on a percentage of the remaining mortgage balance and can amount to a significant expense. Certain homeowners might opt to absorb these costs now to mitigate potentially more significant financial difficulties down the line. Although it’s possible to secure a more affordable deal over a five-year period.
When you remortgage to secure a lower interest rate, it’s common to
encounter various fees. These fees can include arrangement fees, valuation
fees, legal fees, and potentially early repayment charges if you’re still
within a fixed-term deal. It’s essential to consider these costs alongside the
potential interest savings to make an informed decision.
Most lenders allow you to book in a new rate up around six months before
your existing deal ends.
2.
Use a Mortgage Broker
When your mortgage still has some time left to run, engaging a mortgage
broker can be a smart move. Partnering with a
mortgage broker can save you time and reduce the stress associated with
securing a home loan. Using a mortgage broker offers many benefits.
When you work with a mortgage broker, they diligently search for the best deal tailored to your needs and circumstances. Unlike dealing directly with a bank or building society, brokers have access to a wide network of lenders and products, providing you with unbiased advice because they aren't tied to any specific lender.
Applying for a mortgage can be a lengthy process, especially if you’re navigating it on your own. However, working with a mortgage broker can significantly streamline the experience. Using a mortgage broker saves time as they will handle the paperwork, liaison with lenders and manage your mortgage application.
Lenders conduct a thorough assessment of your financial situation and employment history. Leveraging a broker’s expertise can enhance your chances of approval by connecting you with suitable lenders and assisting you in meeting their criteria to minimize the risk of rejection.
Reaching out to a mortgage broker can indeed make navigating the mortgage landscape smoother and more efficient.
3. Wait it Out with no new Mortgage Deal
When your introductory mortgage deal ends, it’s common to be moved onto a higher interest rate known as the Standard Variable Rate (SVR). This rate can fluctuate and may not be as favorable as the initial deal.
If you're currently on your lender's standard variable rate (SVR) mortgage, there might be some flexibility available. Approximately 20% of borrowers are on the SVR, which tends to be the lender's priciest home loan option. By switching to a lower-rate deal, you could potentially reduce your repayments significantly.
However, if you think interest rates will drop it can be worth playing the long game and move on to a fixed term when things settle down and rates start to fall again then secure and lock in a lower deal.
Struggling with Mortgage Debt?
As the pressure of the cost of living continues and with higher interest rates more borrowers will resort to desperate measures to keep up with essential bills and debt repayments. When people are forced to borrow merely to keep a roof over our heads it leads to desperate and reckless measures. The worst way to pay your mortgage is by using credit cards, overdrafts and taking on more debt.
These higher mortgage rates are driving people into debt. Millions are struggling to meet their mortgage repayments with more borrowers resorting to their credit cards and millions more borrowing money from family and friends to make ends meet and cover housing costs.
Withdrawing credit card cash to meet your monthly mortgage repayments is a bad idea. Using a credit card or getting a personal loan is more expensive than mortgage interest rates.
Using your credit card or a loan to cover mortgage repayments is a clear sign that your mortgage debt is becoming unmanageable. While it might seem like a solution, it only creates more financial issues down the line. It’s important to avoid relying on your credit card to make ends meet, even if it feels like the only option.
Having to fall back on credit to survive gives a clear indication of the hardship facing many borrowers. However, getting into more debt to pay off other debts is a path that can cause a downward spiral.
When your finances are unstable and you begin to accumulate debt, it can quickly spiral out of control. In the worst cases, this can lead to insolvency, bankruptcy, and even homelessness.
However, borrowing at high interest rates just to cover your mortgage or rent is generally a bad idea. While it’s crucial to maintain your housing, expensive or unauthorised borrowing is unsustainable and will ultimately worsen your situation.
If you're
struggling to meet your mortgage repayments?
With mortgage repayments on the rise homeowners are dealing with difficult choices. Many are facing much steeper repayments when their fixed-rate home loans come to an end. In an environment of higher living costs and interest rates trying to keep the roof over your head can be a major burden and cause of worry.
Over the past year, mortgage arrears have risen significantly as households face increasing financial pressure. If you currently have a low mortgage rate, finding an equally competitive re-mortgage might be challenging.
However, it’s still worthwhile consulting a mortgage broker to explore potential better deals. Switching to a new mortgage, whether fixed or variable, can lead to substantial savings.
Firstly, see if there are areas where you can cut back and save money, such as spending less on leisure items, life's little luxuries, subscriptions, dining out, food shopping and spending less on the kids.
Secondly, can you increase your income by asking for a pay rise, getting a promotion, finding a new higher paid job, selling unneeded items or working on a part-time side hustle.
Thirdly, remember you aren’t alone, and many others are getting hit hard too. Don’t suffer in silence, speak to your lender if you are having financial problems and experiencing mortgage repayment shortages.
The last resort when you can’t afford your mortgage is lenders will repossess your property. Even mortgage lenders don't want that to happen and are willing to help and come to an arrangement.
If you can’t currently afford your full mortgage payments, then you must get back on your financial feet and still have a few options:
1. Most mortgage providers let you take a payment holiday so you can stop making payments for a few months to help get on top of your budget and finances.
2. Alternatively, you might lower your repayments by extending your mortgage term or temporarily switching to an interest-only mortgage until your financial situation improves. This will cut the size of your monthly repayments to a more affordable amount.
The downside to these is you’ll be paying more in interest payments over the long term by stretching out the mortgage term.
Millions
of homeowners have used credit to meet their monthly mortgage repayments. Using
loans and credit cards to pay your mortgage means your debt problems will get
worse in the future.
Using an overdraft, credit card, or loan to cover a mortgage payment can easily become a recurring mistake. What begins as a single tough month can quickly escalate into a struggle to meet basic expenses. Once you start down this path, it can rapidly spiral out of control, making it increasingly difficult to regain financial stability.
If you’re struggling to meet your mortgage payments, don’t ignore the problem. Start by contacting your lender and explaining your situation openly and honestly. Even if you can’t make the full monthly payment, show your willingness to pay by contributing what you can.
Your lender may provide temporary assistance, such as reducing your monthly payments by switching from a repayment mortgage to a more affordable, interest-only loan. They might also allow you to pay only a portion of your monthly interest, adding the remainder to your outstanding balance. However, these measures are typically short-term solutions, intended to help you get back on your feet within a few months.
In extreme situations, such as unemployment, illness, or bereavement, your mortgage lender might grant you a full ‘payment holiday’ to provide some breathing room. However, you will need to repay the missed payments, along with any accrued interest, over time.
All borrowers should prepare for rising interest rates by considering the following steps:
1. Review Budgets: Examine current spending
and adjust the budget to accommodate potentially higher loan repayments.
2. Refinance: Investigate refinancing
options to secure a lower interest rate before rates climb further.
3. Fixed Rates: Consider switching to a
fixed-rate mortgage to lock in current rates and avoid future increases.
4. Extra Payments: If possible, make extra
payments on the mortgage to reduce the principal balance and the amount of
interest paid over time.
5. Emergency Fund: Build or bolster an
emergency fund to cover increased payments or other unforeseen expenses.
Reserve cash is useful as a fall back when times are tough.
6. Debt Reduction: Pay down high-interest
debts, like credit cards, which can become more expensive with rising rates.
7. Financial Advice: Seek professional financial advice tailored to individual circumstances and long-term goals.
These steps can help mitigate the impact of higher interest rates on borrowers' finances and see you through the hard times.
During the good times when the cash is coming your way, such as a company bonus you should aim to spend less than you earn and pile the extra money into paying off your mortgage faster by reducing the term and making voluntary overpayments to clear your mortgage debt quicker.
Check that your mortgage deal is flexible and
allows overpayments. You can save tens of thousands in interest by clearing
your mortgage early.
