If you are coming to the end of you are coming to the end of your mortgage deal, on a variable rate or looking to buy your first home the past few weeks will have been nothing short of terrifying. After a surge in mortgage rates following Liz Truss’ infamous mini budget the market had calmed for a period of time. However, in the face of inflation that simply won’t budge, lenders have been forced to increase rates as predicted interest rates now look set to peak higher than originally hoped as evidenced by today’s big interest rate increase. Much of this is out of borrower’s hands but there are some things that those who need to remortgage or are looking to get their first mortgage can do to soften the blow.
Borrowers should act now
The first message must be act now. If your fixed rate deal is coming to an end in six months or less get in touch with your mortgage broker or lender now and look to get a new deal locked in. Many lenders will allow borrowers to change the product if the product rates were to fall before the new mortgage completes. There is no telling what the future may hold but at least in the short-term things are unlikely to get cheaper so lock in now. Similarly, when you are required to provide any paperwork do so as quickly as possible as the market is moving so fast that products that are available today are gone tomorrow. Unless your paperwork has been provided and application submitted for approval then once the deal is gone it is gone for good.
Think about a longer term
Secondly, while it may sound like a scary amount of time, opting for a mortgage with a longer term can help reduce your monthly payments. You may want to go for a mortgage with a term of 35 years or over. Not all lenders offer this length but if you use a mortgage adviser, they can help you search the market for the best deal. Although a longer term does mean that you will pay more in interest over the full term it does reduce your monthly outgoings. Once you come to the end of your deal you could opt to remortgage to a shorter term, so it doesn’t necessarily have to be forever.
The interest rate increases may also impact affordability assessments so some borrowers may find they are unable to remortgage to a different lender and are stuck with their existing lender as remortgaging away is unaffordable. This could be a problem for anyone who went for the maximum amount they could be lent whilst interest rate were low and their income hasn’t increased.
Work out exactly how much you can afford to pay monthly
If you are worried that you will not be able to afford your increased mortgage payments do not bury your head in the sand. As with lots of things in life, proactivity can help you weather the storm and get some additional help from your lender. Before calling them to explain your position take some time to work out exactly how much you can afford to pay back. There are budgeting tools and free expert advice available to help you manage your finances. There are also debt management charities and Citizens Advice who can help you plan your finances. If you have sought help, do let your lender know as showing that you have looked at ways of paying back your debt shows you’re serious about it, and can help avoid repossession orders down the line.
Speak to your lender
Lenders have a duty to act fairly with customers who are having difficulties. Having a frank conversation with your lender can help them find a way for you to avoid the problem spiralling out of control. Lenders might be able to put you on a payment plan based on what you can afford to pay back. This could mean providing options to extend your mortgage term, or if your home is worth more than the mortgage, you might be given the option of adding your arrears to the total amount you owe and pay it back over the lifetime of the mortgage. We recommend that you seek advice from a qualified mortgage professional before opting for any plan, as some plans may end up with you paying much more interest over the lifetime of your mortgage.
Karen Noye, mortgage expert at Quilter: