For most households, the mortgage is their biggest outgoing – so repeated rate rises are having a big impact on many budgets at the moment.
Borrowers who are on variable or tracker rates will be most vulnerable to the Bank of England’s adjustments to base rate, the latest of which saw a rise of 0.75% to 3%.
According to Sarah Pennells, consumer finance specialist at Royal London, there are 2.2 million people on a variable rate mortgage.
She said a homeowner with a £200,000 25-year repayment tracker mortgage could see their monthly payments rise from approximately £1,083 to £1,169.
This means they will be paying an extra £86 a month, or more than £1,000 a year
Meanwhile, recent data from the Office of National Statistics (ONS) revealed three in 10 households would not be able to afford an unexpected but necessary expense of £850.
There may be some ways, however, homeowners can reduce the cost of their mortgage.
According to Melanie Whiting, mortgage manager at Norton Finance there are four potential ways in which people can look to reduce their expenses from their mortgages:
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Take an extended term
Melanie explained extending the term of your mortgage is the easiest way to reduce the monthly cost of mortgage repayments.
“This is also worth looking at even if you’re further through your career as lenders are more flexible with lending into retirement now,” she said.
Remember this method will make the mortgage more expensive over the longer term so it’s vital to you speak to an adviser before pursing this course.
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Move to an interest-only mortgage
Interest-only mortgages, as the name suggests, require the borrow to pay the interest-only – not the capital.
Melanie said this is a temporary option for borrowers until rates settle further. She also said she is expecting to see more people choose ‘part and part’ mortgages where some of the repayments are made on an interest-only basis.
Melanie said this is also an option for those aged 55 and over. “For older customers, considering a lifetime mortgage where it is possible to pay either interest only, or roll up to have no payments if they are struggling is a really good option.”
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Remortgaging
If you are due to come out of your fixed-rate mortgage soon, Melanie thinks it’s still worth looking at remortgage rather than defaulting to your lender’s standard variable rate (SVR).
“The SVRs have increased, and they can also benefit from getting a broker to compare the best available offers, whether that be another fixed rate or a tracker.”
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Speak to a broker and get mortgage-ready
Melanie recommends customers should contact a broker to ensure they get the best deal available as brokers can compare the full range of mortgage products without the hassle of shopping around.
“As always, they need to ensure they are remortgage or mortgage-ready by making sure they have a good credit rating and are not over limits on overdrafts or credit cards etc,” she said.
“Due to the higher cost of living, lenders have altered their affordability assessments so customers should go through their bank statements and assess any unnecessary payments that can be cut from their budget.”
