In recent years you won’t have failed to notice a sharp increase in the cost of many goods and services. Whether it’s eating out, your energy bill or your weekly shop, prices have risen significantly.
To try and bring soaring inflation under control, the Bank of England (BoE) raised interest rates 14 times between December 2021 and August 2023, from a record low of 0.1% to the current level of 5.25%.
However, you might be one of the millions of homeowners who have not yet felt the full impact of higher interest rates. The BBC reports that around 3 million households are set to see their mortgage repayments rise in the next two years – with many of them likely to experience a sharp increase.
Read on to find out more, and what you can do if you expect your mortgage payments to jump in the next year or two.
3 million households expected to see their mortgage payment rise by 28%
Figures from the BoE show that more than 3 million (around one-third) or all mortgage accounts have not yet felt the impact of higher interest rates because they have been on a fixed-rate deal. The BoE say these households are paying an interest rate of less than 3%.
The Bank also says that “the majority” of these 3 million households will see their fixed-rate deal expire before the end of 2026.
The BoE estimates that the average owner-occupier mortgagor coming off a fixed-rate deal between now and the end of 2026 will see their repayments rise by around 28%, equivalent to £180 a month.
Within that average, a relatively small proportion are likely to experience some very large increases – around 400,000 households will see an increase in their payment of 50% or more.
4 steps you can take if your repayments are set to rise
If you’re one of the millions of borrowers facing a “payment shock” when your existing deal ends, there are several proactive steps you can take.
1. Act early
If your existing deal expires without you making alternative arrangements, your loan is likely to revert to your lender’s standard variable rate (SVR). This is normally an uncompetitive deal and could result in a substantial rise in your repayments.
To manage any payment shock, it’s important to act early – around six months before your existing mortgage deal expires.
2. Shop around
With thousands of mortgage deals on the market from dozens of lenders, you have plenty of choice when it comes to finding a great mortgage deal.
Remember that it can often pay to compare the deals your existing lender offers you with the rates available with other banks and building societies. Even finding a 0.5% cheaper deal on a £500,000 repayment mortgage over 25 years could save you more than £1,700 a year.
If your existing lender does offer you a loyalty product, don’t simply accept their terms as it may not be the best deal for you. This useful article explains more about why you could lose out if you don’t shop around.
3. Speak to an expert
An independent mortgage broker will have access to a wide range of lenders and products, including many deals that won’t be directly available to you.
They can provide you with impartial advice and search the market for you to find the most appropriate deal for your needs.
Another advantage of working with an expert rather than “doing it yourself” is that they will continue to monitor the mortgage market and can switch you onto a cheaper deal if one becomes available before you complete.
With many commentators anticipating that interest rates will fall in late 2024 or 2025, having an expert on your side could help you find the very best deal in an environment where interest rates may be falling.
4. Renegotiate your mortgage
If you face a significant increase in your mortgage costs and you’re worried about how you’ll maintain your repayments, speak to your lender. There may be options that your lender can consider, such as:
- Increasing the term of your mortgage. This could help you to reduce your monthly repayments – although you may end up paying more interest overall.
- Switching some or all of your mortgage to an “interest-only” basis. This can help to reduce your repayments, but it means that you’ll still owe some or all of your mortgage balance at the end of the term. Read more about this option
- Make overpayments. It may sound counterintuitive, but if you can make overpayments now while you’re on a lower interest rate, your mortgage balance may be lower when you come to renegotiate your deal.
Being proactive and getting an idea of what your repayments will be early can help you to plan for any future increase.
Get in touch
If your mortgage deal is ending in the next few months and you’re facing an increase in your repayments, we can help you to find the right product for you.
Please get in touch by email at [email protected] or call us on +44 (0) 20 3411 0079.
Please note
This article 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.
