The UK mortgage market is felt the heat in 2023, with rising mortgage interest rates reaching levels not seen since the financial crisis. Whether you’re a seasoned homeowner eyeing a remortgage or a first-time buyer dipping your toes in the pool, navigating this choppy water can feel overwhelming. But fear not, savvy borrowers! You can still secure a favourable mortgage deal with the right strategies and information and ride out the wave.
Rates on the Rise: A Reality Check
Let’s cut to the chase: mortgage rates have climbed significantly in the past year. Compared to December 2021, the average two-year fixed rate has shot up by over 80%, from a comfortable 2.34% to a brisk 4.44% – 5.84%. Five-year fixes haven’t escaped unscathed, jumping from 2.64% to a current average between 5.02% and 5.43%.
These changes impact everyone, from first-time buyers grappling with affordability to existing homeowners facing higher remortgage costs. For instance, a £200,000 mortgage with a 2.34% rate over 25 years translates to a monthly payment of £881, while the same mortgage at 5% balloons to £1,169 per month – a £288 difference!
Weathering the Storm: Strategies for Both Buyers and Remortgagors
Whether you’re buying or remortgaging, here are some tactics to help you navigate rising rates:
For Homebuyers:
- Boost your deposit: The larger your deposit, the smaller your loan and the less sensitive you’ll be to rate increases.
- Sharpen your credit score: A good credit score unlocks better deals. Check your report for errors and work on improving your score. Read our latest blog on understanding your credit score and how to improve it.
- Factor in additional costs: Don’t just focus on the headline rate. Consider arrangement fees, legal fees, and potential future rate rises.
- Talk to a mortgage broker: They’ll scour the market for deals across multiple lenders, saving you time and money.
For Remortgagors:
- Compare your current deal to new offers: If your fixed-rate term is ending soon, compare your current rate to what’s available in the market. You might find a better deal and save money.
- Consider extending your term: If you’re facing affordability concerns, extending your mortgage term can lower your monthly payments. However, remember that this will increase the total interest you pay over the life of the loan.
- Think about using a lump sum: If you have a lump sum available, you could use it to reduce your outstanding mortgage balance and potentially secure a lower interest rate.
Finding Your Anchor: Resources for Savvy Borrowers
With rates fluctuating, finding the best mortgage deal requires some legwork. Here are some valuable resources:
- Comparison websites: Compare rates and features from different lenders side-by-side. Sites like CompareTheMarket and MoneySuperMarket are a couple of our favourites. Bonus Tip: Arrange results by different methods including “initial term cost”, sometimes the lowest monthly payment can cost you more in the long run.
- Direct lender websites: Check directly with lenders who cater to your specific needs (e.g., remortgages, low deposit).
- Mortgage brokers: Leverage their expertise and access to exclusive deals, especially for complex remortgage scenarios.
Calm Seas Ahead? A Glimpse into the Future
While the future remains uncertain, there are some potential signs of calmer waters ahead:
- Inflation may be peaking: The latest CPI figures suggest inflation could be on the decline, potentially leading to rate stabilisation.
- The Bank of England may pause hikes: The bank’s recent pauses in rate increases suggest a cautious approach to further hikes.
Charting Your Course: Why a Mortgage Broker Can Be Your Captain
In choppy waters, a skilled skipper is invaluable. Mortgage brokers can help you:
- Navigate the complex mortgage market: They explain options, compare rates, and find the best fit for your situation, whether you’re buying or remortgaging.
- Save you time and money: They do the legwork, saving you hours of research and potentially securing lower rates.
- Offer expert advice: They answer your questions, guide you through the application process, and offer ongoing support throughout your remortgage journey.
Preparing for Increased Payments: Shoring Up Your Finances
Beyond securing a favourable mortgage deal, preparing for higher payments involves proactive personal finance management. Here are some steps you can take:
- Create a budget: Track your income and expenses to identify areas where you can cut back. Every little bit saved can make a difference in offsetting higher mortgage payments. Check out our blog on How To Budget.
- Reduce unnecessary spending: Analyse your spending habits and identify non-essential expenses like subscriptions, dining out, or impulse purchases. Consider scaling back or eliminating these to free up budget space.
- Boost your income: Look for ways to increase your income through side hustles, freelancing, or career advancement. Every extra bit of income can act as a buffer against higher mortgage payments.
- Build an emergency fund: Having a financial cushion helps weather unexpected expenses and provides peace of mind in case of job loss or income reduction. Aim for at least 3-6 months’ worth of living expenses saved.
- Refinance existing debts: If you have high-interest debts like credit cards or personal loans, consider refinancing them to lower interest rates. This can free up money each month that can be used to offset the increased mortgage payment. Learn more by reading our blog on Debt Reduction and Consolidation.
- Negotiate bills: Don’t be afraid to negotiate your monthly bills for things like utilities, internet, or phone service. Many providers offer lower rates to existing customers who are willing to renegotiate.
- Seek financial advice: Don’t hesitate to seek professional financial advice from a qualified financial planner or credit counsellor. They can provide personalised guidance based on your specific situation and help you develop a plan to manage your finances effectively.
- By taking these proactive steps, you can better prepare for increased mortgage payments and navigate the rising interest rate environment with confidence. Remember, proactive financial management is key to staying afloat and reaching your financial goals, even in choppy waters.
- So, stay informed, strategise smart, and leverage resources like mortgage brokers and financial advisors. With proper planning and preparation, you can turn rising rates into a manageable wave and sail smoothly towards your homeownership dreams!
- Don’t forget if you want personalised support, then book your free consultation with Money Moxie Mentor. Together, we can weather this financial storm and reach calmer waters.
