Interest rates are rising for the first time in more than a decade, and it may be affecting your mortgage repayments. If you’re worried about how you’ll keep up with your financial commitments, it’s important to be proactive.
In response to rising inflation, the Bank of England (BoE) has increased the base interest rate several times. Most recently, in November 2022, it increased to 3%. So, if you have a mortgage, inflation could have an effect on your mortgage repayments.
It’s expected that the BoE will make further increases to the base rate.
With uncertainty around how high interest rates will go, it’s not surprising that many homeowners are worried about their ability to keep up with repayments. According to a report in the Financial Reporter, 48% of homeowners are worried about how they’ll manage.
If you have concerns, don’t bury your head in the sand. Being proactive can help you find a solution and mean you can feel more confident about your future.
What to do if you’re worried about meeting mortgage payments now
If you have a variable- or tracker-rate mortgage, your repayments may already have increased. If these increases mean your budget is under pressure, you should contact your lender. It could prevent you from falling into arrears and potentially losing your home.
While you may worry about getting in touch with your lender to discuss money problems, they may be able to offer support and could relieve some of the stress you’re feeling.
Among the options a lender may consider are:
- A payment holiday
If you’re experiencing short-term challenges repaying your mortgage, such as your income stopping temporarily, a payment holiday may be right for you. This could provide you with a short-term period where you don’t need to make repayments.
- Reduce payments for a set period
In some cases, your lender may agree to a period where you pay a lower amount. This could help relieve any immediate financial difficulties you’re facing.
- Extend your mortgage term
It may also be possible to change your mortgage term, such as extending how long it will take to pay your mortgage back. While you’ll be paying your mortgage for longer, which will likely increase the amount of interest you pay overall, it can reduce your repayments now.
- Switch to paying interest only
If you have a repayment mortgage, switching to an interest-only mortgage may be an option. As you’ll only be paying the interest, rather than reducing the debt, your repayments will fall. Keep in mind, with this option, you’ll still have the same amount of debt at the end of the term, so a long-term plan to pay off your mortgage is important.
While these options can provide short-term financial security, you should understand how they could affect the long term too. They could, for instance, mean you pay a higher amount of interest overall or that it takes you longer to pay off your mortgage.
Creating a plan to cope with future rises in your mortgage repayments
There’s a lot of speculation about how much interest rates will rise and what it means for homeowners. So, even if you’re financially secure now, it’s natural to worry about your future.
Keep in mind that the situation can change quickly and accurately predicting these changes is difficult.
While many experts are predicting further interest rate rises, this isn’t guaranteed. The rate of inflation may stabilise and mean further rises aren’t necessary or a recession could mean interest rates fall.
However, taking steps to create financial security could be sensible. Overpaying your mortgage or building an emergency fund could provide you with confidence.
If your mortgage deal has ended or is almost finished, securing a new deal could help you access a better rate of interest.
If you choose a fixed-rate mortgage, you can also rest assured that your repayments won’t increase during the term, which is often two, three or five years. However, you wouldn’t benefit if interest rates fell.
If your mortgage deal has already ended, you will usually be paying your lender’s standard variable rate. This typically isn’t competitive, and shopping around for a better deal can make financial sense.
For homeowners with an existing mortgage deal, you can often lock in a new one up to six months in advance. So, it’s worth checking your current deal and being proactive to provide you with certainty and potentially benefit from lower rates.
Working with a mortgage broker can help you understand what your options are and how they will affect your repayments now and in the future. We can help you approach the right lenders for your circumstances and offer guidance throughout the process.
Contact us to discuss your mortgage needs
If you would like to talk about your mortgage or are searching for a new deal, please contact us. We’re here to help you navigate your options during these uncertain times.
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.