How to keep your mortgage under control

The Bank of England is doing what it can to get inflation under control. 

Unfortunately, what it can do is put up bank lending rate, the rate which underpins the Swap Rates, at which high street banks and other lenders can borrow money.

This means that the interest rates charged by those lenders to customers will also have to increase – which in turn means that record low mortgages have come to an end and the cost of a home loan is set to head upwards.

Mortgage interest rates could potentially double by next year. At Continuum we are looking at how re-mortgaging – simply paying off your existing mortgage and arranging a new one- could help you prepare for them now.

The scale of the problem

We should expect steady base-rate increases for the next year and beyond. How high those rises could go is unknown – but many who have stretched themselves too far with their borrowing will face real difficulties, and even risk losing their homes if they are unable to keep up with increased payments.

A good rate on a two-year deal a few months ago was 1%. That is now off the table. At 2% a borrower with a £200,000 mortgage would pay an extra £1,128 a year. Even higher increases are not impossible – the historic average rate is closer to 5%.

The only home buyers who have some breathing space are those with a fixed-rate mortgage. These will guarantee no increase in monthly repayments until the end of the fixed period.

If you are on your lender’s Standard Variable Rate  (or SVR) or a tracker mortgage, now is probably a very good time to remortgage to a fixed-rate deal. 

The best fixed rate deals may already have vanished, but you may be able to secure a fixed rate deal that will protect you against further rate rises for years to come. 5 -year fixed deals are common, and 10 year fixes can be available – and interest rates on ten-year fixed-rate mortgages have actually been falling as lenders compete for savvy borrowers offering a long term income stream.

Another way to cut costs

There’s another reason to look at remortgaging.

Lenders reserve the cheapest deals for people with bigger deposits or more equity built up in their home. They represent less risk. If a home has to be repossessed, the lender knows they will get their money back, even if they sell it for less than the erstwhile owner paid for it.

So, the lower your property’s loan-to-value (or LTV) the better the deal you may get. The good news is that if you have owned your home for a year or two, the chances are that it has increased in value – so the proportion of the value that you are borrowing will have reduced, lowering your LTV.

House prices have rocketed over the past year, with average growth of 9.7% in 2021, according to the Halifax House Price Index. The average UK home was worth £276,759 in January – up £24,500 from the same month last year and £37,500 higher than two years ago. The chances are that you will be entitled to a better rate as a result.

You might also have upped the value of your home if you have had any improvements done. Or if you have any spare cash, you might be able to make a partial capital repayment to get into a lower LTV bracket.

What to do now

If you are worried about your mortgage, you need to get some help now, and at Continuum we will be pleased to provide it.

Even if your fixed rate has time to run you may be able to lock in a good rate now, with an offer which will hold for six months. It may be worth looking at remortgaging even if your current deal has longer to run.

At Continuum we are independent, which means that we can source mortgages from across the entire market, including deals which are not advertised. By calling us now, you have the best chance of securing the mortgage you need to deal with a future that could be challenging.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable mortgage products, you should seek independent financial advice before embarking on any course of action.

Your home may be repossessed if you do not keep up repayments on your mortgage.

https://www.halifax.co.uk/assets/pdf/april-2022-house-price-index.pdf

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