MILLIONS of homeowners are set to see their mortgage repayments jump by thousands of pounds next year.
About half of mortgage holders have already moved to a new fixed-rate deal since interest rates started rising in late 2021.
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But a further five million homeowners are still due to face higher borrowing costs by the end of 2026, the Bank of England Financial Policy Committee (FPC) said.
The Bank of England has increased the base rate steadily for nearly two years, from a historic low of just 0.1% to 5.25% today.
This rate is used by high street banks and lenders to set the interest on borrowing and savings, including home loans, meaning mortgage rates have gone up too.
A typical mortgage holder coming off a fixed-rate deal between the second quarter of 2023 and the end of 2026 is projected to face a £240 increase in their monthly repayments – or nearly £2,900 a year.
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But around 500,000 households could experience a monthly increase of more than £500 by the end of 2024.
This will be a daunting prospect for many, with the cost of living already adding extra pressure to already stretched budgets.
Plus, the proportion of mortgage balances in arrears increased to the highest level in six years in the third quarter of this year.
The Sun asked Karen Noye, a mortgage expert at Quilter, to find out what people can do now to lessen the shock further down the line.
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Consider your options early
If your fixed term mortgage deal is coming to an end, it is important to consider your options as early as possible.
Karen said: “As a starting point, you should compare what your existing lender has offered against a remortgage to a new lender.
“You can start considering your options up to six months in advance, and doing so will help you better understand what you are likely to face and will give you more time to prepare.”
Because the market is constantly changing, it can be tempting for those remortgaging to sit tight and hope rates fall.
But this can be risky because you could be pushed onto a Standard Variable Rate (SVR).
Karen said: “If you secure a new rate early on, if rates drop then it is easy to amend or cancel and re-secure a new, lower deal.”
You can find out more about how to get the best mortgage deal here.
Make use of budgeting tools
It’s important that your finances are when looking for a new mortgage deal.
This is because lenders carefully check your affordability, so it’s important to understand the state of your finances.
Karen said: “Put a plan in place to help you budget effectively – particularly if your monthly mortgage payments will be increasing.
“When approaching the task of creating a budget, the number one priority should be ensuring it is realistic.
“The more realistic the budget, the more likely you are to stick to it, and there are many budget planners online you can use to get you started.”
Karen suggests looking back on the past three months of your bank statements so you can work out where your money is being spent.
She added: “This will give you an idea of the regular, monthly payments that go out as direct debits, as well as other outgoings on everyday things such as petrol or your daily coffee on the way to the office.
“These regular outgoings can then be factored into your budget and may help highlight unnecessary spending and where you might need to make any cutbacks to help make ends meet.”
“It can also help you identify any unused memberships or subscriptions that you might be able to cancel to help save money.”
You should also shop around to make sure that you’re getting you’re getting the best deals on things like your TV and broadband contracts.
We’ve put together a guide on how to find the cheapest broadband deals.
Review your credit history and score
Your credit score is an important factor when considering a mortgage and getting a credit report completed first can prove invaluable.
Karen said: “If you have a poor credit history or want to improve your credit rating there are a number of strategies that can help including, but not limited to, keeping repayments up to date, reducing the amount of debt you have, being on the electoral roll and closing unused credit accounts and cards.”
There are three main credit reference agencies that compile your score, called Experian, Equifax and TransUnion.
They will pull together information from your financial history and repayment record of previous credit borrowing.
Ratings usually range from poor to good, very good or excellent.
Boosting your score doesn’t have to be complex, and some methods take just minutes.
“If you have outstanding debts, you should check the interest rates you are paying and, if possible, start paying some off starting with the debt with the highest interest rates first.
“Services such as Citizens Advice or Step Change can help you with debt advice if necessary.”
The Sun asked a debt expert the six most common questions asked by struggling households.
Build an emergency fund
“While we often like to save for something in particular, wherever possible you should make sure you at least have a rainy day fund in case of emergencies,” Karen said.
“Aim to have three to six months of expenses in this pot, and top it up as soon as you can should you need to dip into it.”
Karen suggests that you budget a specific amount each month and set up a direct debit or a standing order for the cash to go into the savings in the day you are paid.
She added: “This way you won’t miss the money as you won’t have even noticed it in your bank account and you will have the peace of mind of knowing you have a pot of money available should you need it.”
Creating a nest egg won’t be possible for everyone and you should only put away an amount that you can afford.
The New Year is a great time to get your finances on track and these four methods could help you to get ahead of the game.
Karen suggests that once you have the money put away, it’s a good idea to considering overpaying on your mortgage.
When paying off your mortgage you’ll usually pay set monthly repayments, which are calculated depending on how much you’ve borrowed, the interest rate and the period you agree to pay it back over.
Paying more than the set amount can help you to clear your debt quicker than planned and reduce the interest on your loan.
Karen said: “Overpaying reduces the balance of your loan and can help lower the amount you pay on a monthly basis, as well as the total amount paid in interest in the longer term.
“Alternatively, you may be able to reduce the length of your mortgage term if you opt to keep your monthly payments the same.”
You can use a mortgage repayment calculator to see how much you should overpay on your mortgage.
Don’t bury your head in the sand
It’s best to contact your lender as soon as possible if you’re struggling.
You should do this as soon as you begin to feel worried about making your monthly payments.
Karen said: “As with lots of things in life, proactivity can help you weather the storm and get some additional help from your lender.
“Mortgage lenders have a duty to act fairly with customers who are having difficulties, and the government’s Mortgage Charter requires them to offer significant support.
“Having a frank conversation with your lender can help them find a way for you to avoid the problem spiralling out of control.”
Karen suggests working out how much you can afford to pay back before calling your lender.
You can use budgeting tools and access free expert advice to help manage your finances to help with this.
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“If you have sought help, do let your lender know as showing that you have looked at ways of paying back your debt shows you are serious about it,” Karem said
“It can help avoid repossession orders down the line.”
You can also join our new Sun Money Facebook group to share stories and tips and engage with the consumer team and other group members.
