A mortgage is a loan secured against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
The Bank of England has steadily increased interest rates over the past few months, and more rate rises are on the horizon.
Economists predict that the base rate will increase to 4.5% in 2023. This is not good news for people on a tracker or a variable rate mortgage, as their monthly payment will continue to increase as the rates go up.
Fixed rates, on the other hand, appear to have peaked, and they are expected to actually reduce in 2023; compared to the peaks seen at the end of last year when the Financial markets were in turmoil as a result of the UK Government mini-budget.
However, even if fixed rates will slightly go down this year, they are and they will still be much higher than the very low levels that we had all got used to over the past 10 years.
This unfortunately mean that for anyone that will come off their existing fixed rate deal, their new mortgage rate will still be much higher, and probably double.
This in turn means that higher mortgage payments are on the card for everyone. You can use our free mortgage repayment calculator to find out how much your monthly mortgage repayments might be, or how a rate change could affect your monthly payments.
Please remember that a mortgage is a loan secured against your home. Your home may be repossessed if you do not maintain repayments on your mortgage or any other load secured against it. You may have to pay an early repayment charge to your existing lender when you remortgage. And always a good idea to speak with an experienced mortgage broker who can talk you through the process, and understand the options and what they will mean for you.
If you already have a mortgage and you are on a tracker, variable, or standard variable rate (SVR)
If you have a tracker mortgage, your mortgage rate will increase, as soon as the Bank of England will increase the base rate again.
And if you have a variable rate, it will be up to the mortgage lender to decide when the mortgage rate will increase. Learn more about what is a variable rate mortgage.
If you are concerned about further increases, you may want to consider switching onto a fixed rate.
A fixed rate will protect you against future rate rises, and it will give you peace of mind with stability in your monthly budget.
However, before you switch to a fixed rate, you would want to check two important things.
First, what are the rates on offer. Fixed rates are still more expensive than variable rates; however, variable rates may soon become more expensive as and when the Bank of England will increase rates again.
Secondly, if you are still on an initial deal period with your tracker or discount rate, an early redemption penalty may apply. Therefore, you would want to check if you are better off staying on your current variable deal and accept any future interest rate rises, or if you may be better off paying an exit penalty and get instead the peace of mind of a new fixed rate deal.
What can complicate things further is that mortgage rates change regularly, and it can be daunting to make sense of it all.
You may find it helpful to speak with a mortgage broker that can help you work-through the available options, and also plan the way forward based on your specific circumstances and goals.
If your current rate has six months or fewer remaining
if your current mortgage rate has six months or fewer remaining, it is a good idea to start to plan for the next best available deal.
It typically takes between 3 and 8 weeks to receive a new mortgage offer, after the submission of a mortgage application.
You will want the new mortgage offer in good time and without delays, to avoid facing the risk of ending on the dreaded standard variable rate (or SVR), with significant higher monthly payments.
Delays with the processing of a mortgage application can happen. Therefore, is best not leave things at the last minute. If you are remortgaging to a new mortgage lender, they will complete a full underwriting assessment of your documentations. Should some of your documents not be in good order or missing, this can lead to delays. The new mortgage lender will also carry out a property valuation, and their surveyor will need to have a date available in the diary to visit the property, and this may add to the timelines.
The good news is that many mortgage lenders offer six-month lock-in periods for their mortgage rates, so you can secure a rate now in preparation for when you’re ready to switch your mortgage to the new deal. By locking-in a new rate now, you will have the peace of mind that the mortgage lender will have offered you a new deal.
What can you do to prepare yourself for a mortgage application?
In order to apply for a mortgage and avoid any potential delays, you will want to have your documentation ready and in good order, such as the payslips or the tax returns, and the bank statements. Your bank statements, and other documents, need to show the same correct address where you currently live. Your passport or ID must be valid and in date.
You may also want to check your credit score, and download your credit report from a credit reference agency, to make sure that all is in good order. If your credit history is less than perfect, you may still be able to apply for a mortgage, but this will depend on the level of your credit score, and you may not qualify with all mortgage lenders.
A mortgage broker can help you handle all of this. They will check your documentation, discussing the best available mortgage options based on your eligibility and credit scoring; and they can also advise with any step that you may need to take in order to get ready for a mortgage application. Once all is in good order, the mortgage broker will submit and manage the mortgage application on your behalf.
If you find it difficult to make your monthly repayments
If you find it difficult to make your monthly payments it is always best to talk with your lender as soon as possible. They are required to treat you fairly and they will take your circumstances into account. If they also conclude that you cannot longer afford your payment, they may offer you some options to reduce the monthly payment, such as increasing your mortgage term. However, by increasing your mortgage term, there will be more interest paid over the life of the loan, and this may not necessarily be a good option for you.
Please also remember that ultimately your home may be repossessed if you do not maintain repayments on your mortgage or any other load secured against it. Therefore it is important that if you find yourself in difficulties, you should not delay talking to your mortgage lender, and try to put in place any measure that may help you retain your home. You can also try some of these strategies on how to reduce mortgage costs.
Get the support of an Expert
The good news is that many mortgage lenders offer six-month lock-in periods for their mortgage rates, so you can secure a rate now in preparation for when you’re ready to switch your mortgage to the new deal. By locking-in a new rate, you will have the peace of mind that the mortgage lender will have offered you a new deal.
Whether you are thinking about securing your next mortgage deal or reviewing what may be done about the increased mortgage monthly payments, an experienced mortgage broker can help you.
and one of our friendly advisers at Your Mortgage Experts will be happy to help you.
What should I do if my current mortgage rate has six months or fewer remaining?
Start planning for the next best available deal, as it typically takes between 3 and 8 weeks to receive a new mortgage offer after submitting an application.
How might the recent interest rate changes affect those on a tracker or variable rate mortgage?
People on a tracker or variable rate mortgage will see their monthly payments increase as the rates rise.
What should individuals do if they're concerned about future interest rate increases?
They may consider switching to a fixed rate to protect against future rate rises and ensure stability in their monthly budget.
Luca BertolinoMortgage Expert
Your Mortgage Experts is led by Luca Bertolino with 20 years experience in financial services and in the property market. Through Luca’s wealth of knowledge and expertise, Your Mortgage Experts have become a trusted adviser that clients have come to rely upon for all their mortgage and protection needs.