10 Tips to Manage Mortgage Rate Increases

The average 2-year fixed rate mortgage deal is now over 6% pa.  Millions of mortgage payers are already struggling with payments and are worried about the 12 consecutive Bank of England interest rate increases as the Office for National Statistics (ONS) is due to release inflation figures for May on Wednesday 21^st and the Bank of England then making its latest interest rate decision on Thursday 22^nd.  We suggest inflation could fall to below 7% but interest rates will still increase by 0.25% pa to 4.75% pa.

This is why many mortgage lenders are again pulling their product ranges and reevaluating mortgage deals and rates ahead of Thursday.  We suggest that fixed rate mortgage deals could be sitting at 6.25% to 6.5% pa by net week.

UK Finance, the lobbying group for over 300 lenders, has reported that arrears are up across their membership and with rates set to rise again, even more people will get into difficulty and repossessions will increase.

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Several banking groups have been asking the Bank of England to postpone or defer any rate rises as well as many now asking for government support for borrowers to cap mortgage payment rates.  Average mortgage rates for the last 50 years have been over 7% pa, so we are still below the average.  The writer and presenter of this video, Ashley Roberts-Clark, advised that his first home mortgage rate in 1989 started at 15.6% pa, so at 6% we are not in difficult territory, we have all simply got used to low inflation and low interest rates since 2012.  The US Federal Reserve had increased interest rates at a much faster level and their inflation rate is already down to 4% pa, the UK has been slower and the European Central Bank even slower.

The Bank of England needs us to reduce our high spending, they need savers to invest rather than spend but they must balance this with trying to not let the economy fall into recession.  We do not expect the Bank of England to step back from reducing inflation, we expect interest rates to rise and we do not expect yet more government support.  The government wants to get away from the recent Covid-19 lockdown support and Energy Price crisis support where people now simply expect the government to step in and help financially.  Where would the money come from?  Eventually, government borrowing to deliver financial support packages must be repaid.

10 Tips to Manage Mortgage Rate Increases

1. Know your mortgage.  Find out exactly what your current deal is.  The interest rate, any fixed or discounted period end dates, overpayment terms, early redemption penalties etc.  You plan without knowing what your mortgage deal is.
2. Mortgage calculators.  compare your current deal to those available from lenders or, to keep it simple doe some calculations based upon 6% pa and 6.5% pa.  You need to know what is coming and when.  Mortgage Costs
3. Budget Planning.  Go through your bank account or other expenses records to explore exactly how much you are spending and whether that is on essential living expenses or leisure spending or simple ‘frittered away’ on wasteful items.  You can then look at where you can make cutbacks.
4. Make lump sum overpayments, if you are able, on your existing mortgage.  There is no point having £20,000 in the bank earning 4% in interest if your mortgage is going to be 6.5%.  By reducing your mortgage debt as soon as you can, you will reduce monthly payments when your current mortgage deal comes to an end.  Do check for early repayment penalties as most lenders will usually allow up to 10% of the mortgage balance per year to be overpaid without incurring penalties.  A lower loan to value (LTV) may open a new range of mortgage products.  There are much better deals the lower your LTV is.
5. Talk to your lender early and particularly if you are worried about affording higher payments.
6. Check your credit score.  By working on improving your credit score you may make more, and, in many cases, cheaper mortgage deals available.
7. Extend mortgage term.  Many lenders may allow you to extend your mortgage term e.g., 25 years to 30 or 35 years.  This will mean your mortgage takes longer to repay and you pay more overall, but it will also reduce your mortgage payments in the short term.
8. Compare whole market.  If you approach a ‘direct to consumer’ lender, you will only get to see their rates, if you go to a mortgage broker, many are likely to only consider mortgages that pay a procuration (introducer’s fee/commission), so many lenders may not even appear on a broker’s search.  Pay a fee to an independent adviser who will search the whole market, both direct and broker only deals to find the right deal to suit you.
9. Property Improvements, by doing a little DIY improvement or making the home energy efficient, you may open up a greater range mortgage’s available if the value of your property is then higher i.e., again the loan to value has fallen.
10. Increase payments now.  By starting to pay higher monthly mortgage payments today, there is a doubling up advantage.  A) you will reduce your mortgage outstanding before you need to access any new higher rate remortgage deal and B) you will already be getting used to and budgeting for higher mortgage payments before they start with any future new mortgage rate you secure.

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