Mortgage rates have been on an upward trajectory over a number of weeks. This comes after a period of consistent decreases since the spike in mortgage rates following the Mini-Budget of September 2022. Inflation figures are the driving force behind the latest increase. Inflation falling slower than expected has resulted in the Bank of England opting to further increase interest rates. Mortgage lenders have also increased fixed rates available to ensure they remain profitable in line with updated forecasts.
In response to the increase in mortgage rates, the Chancellor called for a meeting with major mortgage lenders to discuss measures to ease the pressure on struggling homeowners. News from the Downing Street summit on Friday suggests help will be made available. This may include the option for borrowers to extend the mortgage term or move onto interest-only. Changes like this are generally only available when remortgaging, at the end of the product term. If utilised, it has been suggested these changes will be reversible within a 6-month period and won’t have any impact on the borrower’s credit report. Extending the mortgage term reduces monthly payments as the loan is simply repaid over a longer period. Interest-only reduces mortgage payments as the mortgage balance is not being repaid, only the interest.
In addition to the above, it was suggested homeowners failing to maintain mortgage payments be given 12 months before the lender initiates repossession proceedings. It should however be stressed that missing a mortgage payment will negatively impact your credit report and ability to apply for a new mortgage in the future. If you are struggling to maintain your mortgage payments, speaking directly to your lender is the best option. Further options may be available.
UK Finance estimates 74% of homeowners are on fixed rate mortgages. After a period of historically low interest rates, many are seeing monthly payments jump significantly when remortgaging, at the end of the product term. Depending on your circumstances, extending the mortgage term or moving all or part of the mortgage onto interest-only, as mentioned above, are options that can be considered. Remortgage offers are generally valid for 6 months. It is therefore recommended to get in contact with a broker or your lender at this stage. Doing so well in advance of the end of your current product term allows you the maximum time to discuss your options and apply for the most suitable product and lowest interest rates available. While the interest rate is secured at the point of mortgage application, if lower interest rates become available between application and completion, these can still be taken advantage of. Media reports referencing interest rates being “pulled” relate to those yet to apply for a mortgage product.
First time buyers face the same challenge in terms of the increasing cost of mortgage payments. While lenders may allow borrowing up to a given amount, consideration should be given to the practicality and affordability of the monthly payments. The same applies to those looking to move home and potentially increase the mortgage.
Looking ahead, market forecasts for interest rates to decrease remain. However, homeowners remortgaging in the foreseeable future will almost certainly be facing increased mortgage payments. Discussing options well in advance, whether buying or remortgaging, is therefore strongly advisable. If you’re concerned about mortgage costs and want to understand options,. we’re here to help with free, professional advice.