If you have been feeling concerned over your future mortgage payments recently, you’re not alone.
With news reports of high rate rises over the last few months and a rapidly-moving market, which will affect so many households, it’s understandable there is a feeling of unease amongst many mortgage holders across the UK.
This concern spills over to tenants too, as rising rates can naturally force landlords to raise rents or sell up.
The biggest factor, however, fuelling our fear response to all the above, is how fast the mortgage market is changing and how volatile it seems to be.
This really sets off a sense of anxiety in many. Especially when it’s dramatic enough to be making mainstream NEWS headlines.
What is anxiety and what causes it?
Prior to working as a mortgage broker, I spent many years as a Cognitive Behaviour Therapy (CBT) therapist.
When we experience any variety of anxiety, it largely stems from a belief that we are out of control of something and therefore in danger.
This can be conscious or subconscious. Your resistance to feeling out of control will be individual but when several elements tip over the edge of your personal threshold of resilience, you naturally feel a fear response.
This might look like free-floating anxiety, which begins to show up in your everyday but isn’t specific to a subject. Alternatively, it can be a trigger response to a particular stimulus.
Either way, its hugely uncomfortable and unhealthy to remain there. In addition, it can lead you to making decisions based on assumptions.
Catastrophising or fortune telling are both behaviours which stem from anxiety and are not helpful for decision making nor leading you towards the sense of peace you crave in an unsettled time.
Starting to tackle anxiety around our finances
Understanding your mental health and using practical decision-making can help you gain control of your choices when it comes to your mortgage.
You need to recognise what you CAN control and what you CAN’T control.
For example, you CAN’T directly control the rates or the larger political decisions that are made around this. You CAN’T know that everything you read or hear applies to you and your circumstances, or if it’s representing the full picture.
You CAN speak to an adviser working in the market and get a full picture of your options, considering your needs and circumstances now and in the future. Mortgages are as individual as you or I. You CAN get informed, and this will aid your decision making.
Even if the choice you make feels more uncomfortable financially than you’re used to, understanding why you made that choice and recognising you did this from a place of information and therefore power, enables you to feel back in control.
If your choices when looked at, are few and challenging, the adviser can help you to find the guidance you may require.
It’s not easy, but once you create a plan and start to take a step-by-step approach in the right direction you will naturally feel more in control as a result.
Don’t bury your head and hope it goes away. Grab back you sense of control; this will allow for you feel more at ease emotionally and practically ensuring the best possible outcome for you.
Arm yourself with these tools to help you navigate the unknown
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Look at the bigger picture: The mortgage market runs in cycles
Life is full of ups and downs and so are the financial markets. When you hear how the mortgage market is ‘cyclical in nature’ it’s a reference to these ups and downs.
Within that life of a mortgage, you may move lender, change the product and loan amount but nonetheless the amount of time you tend to have a mortgage of some kind will typically be 25 to 40 years.
It is to be expected that through such a long length of time, you’ll see many variations of the ‘average interest rate’. It will rise, and it will fall. You will have times of higher average rates and times of lower ones.
The specific time you entered the market will determine what you’ve experienced thus far.
So, if you took out your first mortgage within the last decade, for example, you will be used to comparatively low rates compared to what we are seeing in today’s market.
However, if you first got your mortgage some 30 years ago, you’ll have experienced significantly higher rates than the last 10 years. The rates we are seeing today will be lower than what you have seen historically.
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Reframe: Taking the leap to higher rates
But let’s focus on those of you who are moving from a low rate and remortgaging to a rate which feels much higher than you are used to.
Something you may not realise is that at the time of securing the low rate, you would have been ‘stress tested’ in the background by the lender.
This means the lender’s own calculators would have assessed whether you could have afforded their mortgage if it were at a higher rate. They would have applied the fact that rates ‘cycle’ – or fluctuate – over the term.
Therefore, in theory, the mortgage was deemed affordable not just at the lower rate but at a higher one too.
This means that for many, although paying more each month towards your mortgage will feel uncomfortable, it is potentially still affordable with slight adjustment to some non-essential spending.
This does not, however, take into account life changes, such as relationship breakdowns, employment changes and new additions to the family which can stretch a household’s budget and change the circumstances.
So, finding the additional monthly cost of the remortgage on a higher rate, can be extremely difficult for many too and we urge you get advice around your options.
We will see the rates fall again, when and by how much is not known. But do remember the cyclical nature of the market and being sure to work to your budget in a responsible way that allows for these rises and falls.
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Plan for the future: Ditch the crystal ball and be guided by your own needs
The question I am asked most at the moment is what will rates do? Followed by, should I fix my mortgage for two or five years?
The truth is I do not know what they will do for certain. None of us do. We listen to predictions of the economists in the industry and we watch the swap rates for guidance, but we cannot with certainty tell you.
The predictions can’t account for unprecedented events, such as pandemics, wars, political unrest and therefore it is not a good idea to try to ‘play the market’.
Looking at the guidance and considering that information within your thought process is wise but basing your decision on this wholly can be a mistake. Instead, think about your future plans, ideals and needs.
For example, are you looking to move home or refinance in the coming few years? If so, you may want to look to fix your product for a shorter time to avoid paying early repayment charges when you are looking to adjust your circumstances.
You can also discuss options around porting or further advances with your broker to help equip your understanding on your options in this circumstance.
If knowing your payment will not change for five years brings you a greater peace of mind than potentially remortgaging to a lower rate in two or three years, then you would naturally feel best to secure a five-year fixed rate to enable that level of certainty in your life.
If you feel you don’t want to be tied into a product. Providing you have the appropriate risk appetite, a good understanding of the product and some flexibility in your budget, you might opt for a tracker or variable with no early repayment charges at this time.
Think about your personal priorities, your needs and your ideal plans within the next five years, team that with some market predictions and good mortgage advice from a professional working in the industry and you’ll be able to make an informed choice with the secure knowledge you did what was best for you. And that is hugely individual, there’s certainly no one bit of advice that fits all.
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Don’t focus on average mortgage rates: Zone in on what you can control
This leads me onto a very important shift in focus. Rates are all over the news. Increasing rates are making weekly headlines. We are all aware they have risen significantly over the last year and as it stands may continue to do so. This can feel daunting, disheartening and in some cases very scary.
Let’s look at what we can control and not what we can’t – specifically: your budget.
Your available mortgage budget can be determined by calculating what comes in each month and subtracting your essential and committed expenses. This includes loans and credit cards, utility bills, phone, insurances, savings, and travel.
The figure you’re left with is disposable income. Leaving some for flexibility you’ll be able to see how much you can afford to put towards your mortgage. This is your budget.
When looking at your remortgage or purchase options, this should be your focus. Your broker can assist you in matching a term to this budget as best they can.
If the mortgage is unaffordable after recognising your budget, you may need to adjust some spending where you can or look at ways to reduce the mortgage loan.
If you find the mortgage is well within budget, you may want to look at minimising the term to match your budget, so that you can save on interest overtime and pay down the capital loan quicker.
Working with a broker will help you understand all your options to assist in the task of making your mortgage neatly fit within your available budget.
Gemma Bennett is a senior mortgage broker for The Mortgage Mum
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