Are you ready for higher mortgage costs?
Around 1.5 million fixed rate mortgage deals are set to end over the next 12 months, leaving homeowners often facing a sharp jump in mortgage costs.
According to the Resolution Foundation, mortgage bills will rise by £1,800 a year on average for those remortgaging in the next few months, placing huge financial strain on households already struggling to make ends meet.
Steve Vaid, chief executive at the Money Advice Trust, the charity that runs National Debtline said:
“High interest rates have already added to the pressure many homeowners are under as they grapple with significantly steeper mortgage repayments.
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“For the thousands of mortgage holders coming to the end of fixed rate deals this year, the pain is still to come. I would urge anyone struggling to get in touch with their lender who can offer support, more than many people may think.”
Options that your lender may be able to offer you if you’re going to struggle to cover steeper repayments may include either switching your mortgage onto an interest-only basis for six months, or extending your mortgage term temporarily to reduce your monthly payments.
However, if you’re considering taking either of these routes, make sure you weigh up the potential downsides too. For example, extending your mortgage term may make your monthly payments more manageable for now, but it will mean you end up paying more than you would have if you’d stuck with a shorter mortgage term.
A spokesman for Mojo Mortgages said: “While these may help you in the short term, it’s worth noting that there are some longer-term repercussions (such as more interest paid overall). Make sure you discuss all the options available with your lender to find the right solution. It’s also worth noting that discussing your situation won’t impact your credit score.”
If you’ve got a while before you need to remortgage, and you can afford to do so, you may also want to consider overpaying your mortgage while you’re still on a lower rate.
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For example, if you’re currently on a 3% fixed rate deal and have a £150,000 mortgage with a 20 year term, and you make a £1,000 overpayment to reduce your mortgage balance, this would save you £810 in interest and allow you to pay off what you owe two months earlier.
Jonathan Watts Lay, Director, WEALTH at work, said: “Overpaying on a mortgage before it’s renewed at a higher rate could be a good idea. This is especially true for those who are going to struggle to pay a new higher monthly rate, as they may be able to secure a better deal by paying more off in advance.”
It’s also worth looking at ways you might be able to free up some extra cash to help you manage higher mortgage costs. Mr Watts Lay said: “The first step to cutting costs is to create a budget. People should work out what exactly their income is each month and then check their bank statements to clarify what outgoings they have. Outgoings can then be divided into fixed costs which have to be paid such as a mortgage, council tax, energy and water, and then those which may be able to cut back on such as supermarket shopping, monthly contracts for TV, subscriptions and other spending. Some banks have apps which enable this to be done automatically, this will highlight where money is going and where savings could be made.”