FAMILIES face a £200 surge in monthly mortgage payments when their fixed rate expires this year.
A staggering 1.6 million UK families will have to remortgage in the next 12 months, according to the Resolution Foundation think tank.
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Because mortgage rates have rocketed since they last locked into a fixed rate deal, the average family will have to pay around £2,300 more a year.
In 2021 the Bank of England base rate was just 0.1% and you could get a two-year fixed rate mortgage for less than 1%.
But after 12 successive hikes, the base rate is now 4.5%.
Even if you only need a 60% loan-to-value mortgage, the cheapest two-year fixed rate on the market is 4.34% from Lloyds Bank.
Monthly repayments for a £200,000 mortgage with a 25-year term on a two-year fixed rate at 0.99% would be £753.
If you were to remortgage to the Lloyds Bank 4.34% deal, your monthly repayments would go up to £1,094 – an extra £341 every month.
If you don’t remortgage onto another deal and roll onto your lender’s standard variable rate (SVR), it’s likely your monthly payments would go up even more.
Most of the big lenders have SVRs around 8%, meaning monthly repayments would rocket to £1,544.
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But there are ways to minimise the pain. We spoke to the experts to find out what you must do if you’re heading towards the end of your deal.
Speak to a mortgage broker
When it comes to remortgaging, you’ve got a number of options.
Stay with your lender and see what new deals they can give you.
Find a deal you like and apply online or directly with the lender.
Or speak to an independent mortgage adviser.
Justin Moy, managing director at EHF Mortgages, said: “It really is worth speaking to a broker and not directly to your lender.
“Because brokers have access to mortgage deals from hundreds of different lenders, they’re ideally placed to check what your current lender will offer you and what you could get elsewhere.”
Justin also said your lender may not offer you the best rate you could get and you won’t get independent advice.
Don’t leave it to the last minute
Act early and act fast, said Lewis Shaw, mortgage expert at Shaw Financial Services.
“Don’t leave it to the last minute – make sure you speak to an independent mortgage broker six months before your fixed rate ends,” he advised.
“That way, you can plan for when the new deal starts.
“Of course, that might mean jiggling your finances around if you’ve got a big mortgage payment hike on the horizon.”
Clean up your credit
Scott Taylor-Barr, financial adviser at Carl Summers Financial Services, said getting your money in order is crucial to secure a good rate.
“Understand your income and outgoings,” he said.
“Mortgage brokers and lenders will want to see both in some detail, so sitting down and doing an accurate budget planner and having your pay slips stored will be helpful.”
Honesty is the best policy
The past few years have been a financial nightmare for millions of families.
First the pandemic caused chaos in the jobs market and incomes took a big hit.
Bills were missed and payment holidays were taken by millions.
Then rabid inflation took hold. Energy bills have soared and the price of food has gone up a staggering 20% over the past year.
It’s no surprise that family finances have come under pressure.
Don’t feel embarrassed to be honest about any difficulties you’ve had, said Scott.
“If you have some missed payments, or a default, or a County Court Judgment (CCJ) let your broker know at the start,” he advised.
He also suggested getting a copy of your credit file if you have any doubts.
“Having those details will help your mortgage broker to make sure they approach the right lenders for you from the get-go,” he said.
“There is no way to hide this sort of information, so be upfront and then you’ll get to the right place sooner.”
Be realistic
Lenders decide what rate you get by looking at your finances and also at the value of your home.
Kylie-Ann Gatecliffe, director at KAG Financial, said: “Find out how much your current property is worth – many websites offer desk top valuations or you may wish to get advice from an estate agent.
“The more equity you have in your property, the better rate you will be offered, so having the correct valuation will help.”
Don’t panic
Even if you’re doing absolutely everything right, rates have risen so steeply that your repayments are likely to go up a lot.
Don’t panic and assume you can’t afford it.
“Given rates are now higher, give some consideration to extending your mortgage term,” said Clive Read, owner of financial firm GoldmanRead.
“This could mean you don’t suffer a payment shock.
“Consider how much you can afford monthly and target the repayment period that meets that payment.”
Samuel Ewen, managing director of Rosehill Financial Services, said there are other ways to keep payments down too.
“You can discuss the option of temporarily having the loan arranged on an interest-only basis to reduce your monthly payments,” he says.
