As UK inflation remains stubbornly high, the Bank of England (BoE) has attempted to tackle the problem by increasing the base interest rate 13 times since December 2021.
As the base rate hit 5% in June 2023, the average price of two- and five-year fixed-rate mortgages in the UK reached its highest level for seven months. Data published by the Guardian revealed that the cost of a two-year deal for homeowners rose to 6.23% in late June 2023 while the average cost of a five-year deal rose to 5.86%.
Rising interest rates has put pressure on homeowners, especially as the BBC reports that around 1.6 million UK homeowners with a fixed rate will see their deal come to an end by December 2024.
There are also more than 1.4 million people on tracker- and variable-rate deals who will likely see an immediate increase in their monthly payments as a result of the most recent interest rate rise.
If you’re worried about rising mortgage costs, here are five practical ways to keep your mortgage payments as low as you can.
1. Plan as early as possible
If your mortgage deal is coming to an end, an important first step is to plan as early as possible. We’d normally recommend that you seek advice six months before your current deal expires – so if your deal is scheduled to expire in 2023 you should be planning now.
Many lenders will honour mortgage offers for up to six months, so we can agree your borrowing now and “lock in” an interest rate to protect you against further increases over the next few months.
Considering that the Evening Standard reports that many commentators expect the base rate to rise to 6%, taking early action could help to mitigate the rise in your repayments when your deal ends.
Planning early can also help you to understand what any likely increase in your repayments will be, enabling you to adjust your budget accordingly.
2. If your deal is coming to an end – shop around
Another important step you can take to keep your mortgage payments low is to shop around if your deal is coming to an end.
It’s likely that your existing lender will offer you a “loyalty” product to encourage you to stay with them.
However, as you’ve read before, taking a deal from your existing lender without shopping around could mean you end up paying significantly more than you need to. There may be much better deals on offer from other lenders that could reduce your repayments and be more appropriate for your needs.
Additionally, sometimes your existing lender will also have better deals available than the one they are offering you.
Speak to an independent broker to ensure you find the best rate for you. We can check all the deals on offer with both your existing lender and other options, to ensure you benefit from as competitive an interest rate as possible.
3. Pay down part of your mortgage
If you have some time left on your existing deal, it’s likely you’re paying a lower interest rate than the deals currently available.
So, if you can overpay now, or pay down part of your mortgage from savings, it could mean your repayments are more manageable when your interest rate likely rises.
Most lenders will allow you to repay up to 10% of your outstanding balance each year without incurring an “early repayment charge”. Alternatively, you could repay a lump sum as part of the remortgage process and borrow less from your new lender.
Another option would be to build up a lump sum now and benefit from rising savings account interest rates. If the rate of return you can secure on your savings is higher than the interest rate on your mortgage, you could amass a cash sum to pay off your mortgage when your existing deal ends.
4. Extend your mortgage term
If you’re struggling to manage your mortgage repayments, one way to bring down your monthly cost is to extend the term of your mortgage.
As an example, a £400,000 capital and interest mortgage at an interest rate of 5% would cost:
- £3,163 a month over 15 years
- £2,640 a month over 20 years
- £2,338 a month over 25 years
Source: Altura mortgage calculator
Extending your term could help you to manage your repayments now – but bear in mind you’ll likely pay more interest overall as you’re repaying the loan over a longer time period.
Remember also that you could consider extending your term now to manage your repayments, and then reduce your term again when your circumstances improve or when you remortgage in the future.
Speak to your existing lender if you want to consider this option. Alternatively, if your existing deal is coming to an end, we can help you to understand what your monthly repayments would be over a range of different mortgage terms.
5. Switch to “interest only” for a period
Switching your mortgage to an “interest-only” arrangement could help to bring down your repayments as you’re only paying interest on the loan, not paying off the amount you borrowed.
Moving to interest-only can help to keep your monthly payments more affordable in the short term.
However, you must remember that paying just interest means the balance of your mortgage will not reduce, and you’ll have to find an alternative way to repay the amount you owe when your mortgage term ends.
If you’re concerned about this, you could consider just switching part of your loan onto interest-only, and leave the remainder of your home loan on a repayment basis.
Your lender will be able to help you understand what your repayments would be if you switched part of your loan to interest-only. Additionally, your eligibility for this will depend on factors such as the equity in your property and your income and expenditure.
Get in touch
If you’re concerned about rising interest rates and you’d like to investigate how you could keep your repayments as low as possible, get in touch for expert advice.
Email [email protected] or call us on +44 (0) 20 3411 0079.
Please note
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
