Homeowners will have breathed a sigh of relief last week when the government finally announced a policy to prevent energy bills skyrocketing, but the cost-of-living crisis is far from over. The next thing to worry about is your mortgage.
On 22 Thursday the bank of England raised interest rates by 0.5 percentage points, which takes the base rate to 2.25% — the highest level since December 28.
“The historic low loan deals that buyers were blessed with for the past 12 years have been swept away by six Bank of England base rate rises so far this year,” James Coney in The Times. The Bank is expected to increase the base rate by 0.75 percentage points to 2.5% next week.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
In 2020 you could fix your mortgage for two years at an average rate of 2.24%, according to comparison site Moneyfacts. The best buys were far lower – less than 1% in many cases. Now the average two-year fix is 4.09%. On a £500,000 25-year mortgage that will mean your monthly repayments rise by almost £500.
“We are facing the worst mortgage shock since the 1980s,” says Melissa Lawford in The Telegraph. The rate rises amount to a “financial disaster for those remortgaging next year”.
A fourfold jump in two-year fixed mortgage rates
In fact, if you can remortgage now, you can count yourself lucky – experts are predicting things will be far, far worse next year. “Analysts expect the Bank Rate to climb further – to 3% next year,” says Lawford. “The average rate on a two-year fixed deal for a buyer with a 25% deposit would then jump to 4.88%, according to Hamptons. This would be four times the rate at the end of 2021.”
So, what can you do to prepare yourself? If you can remortgage, now is the time to do it. Rates are still going up, so locking in now will save you money. Even if your current deal doesn’t end for some time, you can shop around for a mortgage now. Most mortgage offers are valid for six months so you could be approved for a lower-rate deal now than you will be able to get in a few months’ time.
If you can afford to, consider overpaying your mortgage. “Borrowers who are still enjoying a low mortgage interest rate can overpay now to help erode their balance more quickly and leave them with a smaller mortgage when their current deal ends,” says David Hollingworth of L&C Mortgages in The Mail on Sunday.
When it is time to remortgage, you could lengthen your mortgage term to lower your monthly repayments. For example, a £200,000 mortgage at 3% would cost £948 a month on a 25-year-term or £843 over 30 years. Just remember, the longer it takes you to repay your mortgage debt, the more interest you will pay.
Note too that if you see a good mortgage deal, you need to act fast. As rates rise, lenders are “pulling products from the market within 24 hours of launch”, says Imogen Tew in The Times. Many lenders are dealing with a backlog of applications as homeowners try to grab a new mortgage before interest rates rise again. This means lenders have “already hit their loan targets for the year and so have been quick to take deals off the market”.
-
Mortgage deals pulled: average two-year fixed rates surge to highest level in 15 yearsNews The choice of mortgage products has fallen since 24 May - and rates for fixed deals have risen.
-
London households face a mortgage hike of £7,300 a yearNews Around 3.5 million households are yet to feel the impact of rising mortgage rates because they are still on cheap fixes or variable rate deals
-
Skipton launches a 100% mortgage – how does it compareNews Skipton Building Society has launched the UK's first 100% loan-to-value mortgage exclusively available to renters. Similar deals are already available from a number of lenders, but all require some type of help and guarantee from family.
-
HSBC launches 3.99% fixed-rate mortgageNews Mortgage rates have remained elevated since the mini-Budget, but could this latest offering from HSBC be a sign of lower rates to come?
-
Mortgage borrowing falls by £1bn as property market slowdown continuesNews Data from the Bank of England reveals mortgage borrowing fell from £4.3bn in November to £3.2bn in December. We look at why the housing market is slowing down, and what you can do if you’re worried about your mortgage
-
Over 1.4m households face mortgage rate hike in 2023News As fixed rate deals come to an end, 1.4 million households will pay significantly more later this year - what does this mean for you?
-
Government extends mortgage guarantee scheme to help first-time buyersNews The mortgage guarantee scheme helps those with 5% deposits secure high loan-to-value mortgages.
-
Millions of homeowners face £250 jump in monthly mortgage payments next yearNews The Bank of England has warned that homeowners and buy-to-let investors will need to pay thousands of pounds in extra mortgage payments next year. We explain what help is available if you’re worried about rising mortgage costs.
