April is very much the time for a fresh start. It’s not just the beginning of Spring, but the start of a new financial year as well, making it the perfect time to make some changes in your life.
Just as many of us take this opportunity to give our homes a Spring clean, so too is April an excellent time to take that same approach to your finances, particularly your mortgage.
After all, it’s certainly been a busy time for the mortgage market. In March, the Bank of England elected to increase the base rate to 4.25% – the 11th consecutive increase. This has already had a knock-on effect on the mortgage market.
With the prospect of further increases to come in the months ahead, given the persistently high rate of inflation we are all dealing with, it’s never been more important to ensure that you are on the right mortgage deal for your circumstances.
So how do you go about doing it?
What mortgage do I already have?
The first thing to consider is the mortgage you already have.
Understanding the terms of your mortgage, how much you still owe and – crucially – how long your interest rate will last is absolutely vital to making an informed decision.
After all, if you are only two years into a five-year fixed rate, then chances are your best options would be around overpaying in order to clear the mortgage debt more quickly, rather than looking to refinance.
By contrast, if you only have six months or so left on your fixed rate, then time is absolutely of the essence to arrange your next mortgage deal.
What is my budget?
Another vital issue to think about is your budget, and what you can afford to pay towards the mortgage each month.
All of us are having to cope with rising costs on all sorts of household bills. Unfortunately, April will see a host of them increase further still, such as Council Tax, water bills, and for many people broadband costs too.
Now is a great time to go through those outgoings to see what is really essential, and where savings can be made. Those savings could be put to use by overpaying on your mortgage, or if you are refinancing and facing the prospect of higher repayments, can help to keep them affordable.
Equally, those funds can be devoted towards building an emergency pot that you can turn to should your circumstances change, such as a job loss or illness.
Having a savings safety net like this can ensure that even if the worst happens, you don’t have to take on more debt or fall behind on your mortgage repayments.
What type of mortgage suits me?
Mortgages come in different forms, and understanding how they work and the pros and cons of each will ensure you select the right kind of mortgage for you.
For example, fixed rate mortgages can be an attractive option. Rates have dropped of late, meaning that some borrowers can secure a five-year fixed rate at under 4%.
That stability and peace of mind can be powerful in an uncertain rate environment, particularly if you are the sort of person that values knowing precisely how much you will have to pay towards the mortgage each month.
However, if you believe that rates may drop over the next year or so then a tracker mortgage can be a better option. They are cheaper from the outset, but they bring an inevitable uncertainty – your monthly repayment can change repeatedly as the base rate moves, pushing your monthly bills higher or lower.
Financial predictions can be uncertain, and while base rate is currently forecast to drop to 3% by the end of next year, that forecast hinges on several ‘what if’ scenarios. If they don’t come to pass, then the size of your repayments could be rather different.
Get advice on your mortgage options
Given that uncertainty, and the speed with which the mortgage market moves, it makes a lot of sense to utilise the expertise of a mortgage broker. An independent broker will take the time to understand your circumstances and what sort of mortgage is best suited to you.
Brokers also enjoy access to lenders and products that cannot be applied for directly, meaning you benefit from a wider level of choice.
Richard Campo is founder of Rose Capital Partners
