Mortgages are one of our biggest monthly expenses and it’s not always easy to keep up with your repayments. As interest rates look set to increase, we’re here to help you decide if now is the right time to switch to a new solution or whether you should stick with your existing deal
With the cost-of-living crisis dominating UK headlines and petrol, energy, and food prices continuing to soar, it’s becoming harder every day to keep up with our debt repayments. Inflation is expected to reach 10% by autumn and many of us will continue to feel our budgets getting tighter over time. Mortgages are often our biggest monthly expense. It’s a good idea to review your agreement regularly to keep costs down, but is now the best time to look for a new solution before interest rates rise even higher?
Why might you consider switching mortgages?
UK interest rates are rising; the Bank of England has increased rates five times since December 2021 and with the most recent rise in June 2022, the base rate went up to 1.25%. All signs point to interest continuing its upward trajectory with some estimates predicting it could hit 3.3% by the end of 2023.
This rise in interest will start to affect mortgages soon, especially those of the two million people with variable rate UK mortgage debt and the thousands more of us with fixed-rate mortgages that are coming to an end soon.
If you’re able to switch up your deal and re-mortgage onto a secure fixed-rate loan, now might be the time. Choosing to wait instead could put you at risk of missing out as lenders reach their limit on the number of fixed-rate mortgage deals they can issue.
Everyone’s circumstances are different, but how can you decide whether you should you switch or stick as interest rates rise?
Fixed-rate mortgages
A fixed-rate mortgage won’t be immediately affected by the changing interest rates. With this type of mortgage, you agree to an interest rate and stick with it, typically for three to five years. This means you might miss out if interest rates fall but it does offer some protection if they rise. If you have a fixed-rate mortgage that doesn’t renew for a few years, you might want to stick with the deal you have. However, if your existing agreement is due to end in the next six months, you can start looking for a new loan now to lock in a cheaper rate before interest rises.
Tracker mortgages
Tracker or variable rate mortgages go up and down with the mortgage rates; if you’re on this type of mortgage, you’ve probably already seen your monthly payments start to increase. In this case, it might be worth your while to switch onto a fixed-rate mortgage now.
There are a few things to consider. First, check if you’ll be charged an early repayment fee if you terminate your mortgage before its original end date. Other fees can also apply such as valuation and legal fees and booking or arrangement fees. Weigh up your options to work out if the potential savings from switching to a new mortgage would be worth more than any fees and penalties.
What should I do if I can’t afford my mortgage repayments?
If you can’t switch to a fixed-rate mortgage, you don’t have to struggle in silence. Seeking debt advice can help you to identify potential debt management plans that will make your situation more manageable. As debt help experts and an IVA specialist, My Debt Plan can help you find a sustainable way to write-off unsecured debt. Not only could this help you manage your monthly budget, but it could also help to improve your chances of securing a new mortgage when providers come to assess your affordability in the future.
Looking for debt management advice? Our friendly debt advisors are ready and waiting to help. Call us today on 0161 8260 585 or contact the team by email here.
