Homeowners with fixed-rate mortgage deals that end in 2024 could face much higher repayments due to rising interest rates. If your mortgage deal expires this year, being proactive could help you manage your outgoings.
High inflation over the last couple of years has led to the Bank of England (BoE) increasing interest rates. In November 2021, the BoE base interest rate was just 0.1%. As of February 2024, the base rate is 5.25%.
When the BoE changes the base rate it affects the cost of borrowing, including the money you borrow through a mortgage.
Homeowners who have a fixed-rate mortgage deal may not have been affected by the BoE interest rate rises yet. So, when their deal comes to an end, their repayments may rise sharply.
Fixed-rate mortgage holders will see annual bills rise by ÂŁ1,800 on average
According to a report from the Resolution Foundation, almost two-fifths of households that had a mortgage when the BoE started rising rates had not reached the end of their fixed-rate deal at the start of 2024.
It’s estimated that 1.5 million households could be affected by rising mortgage repayments this year. On average, these families will see their mortgage repayments rise by £1,800 a year.
Inflation is slowly falling, and it’s expected that the BoE will start to make cuts to its base rate. However, this is not guaranteed and the Bank may choose to wait until 2025 or later to ensure that inflation has stabilised.
As a result, mortgage holders searching for a new deal this year could face significantly higher repayments than expected.
As a mortgage is often one of the largest loans you’ll take out, even a seemingly small change in the interest rate you pay can have a large effect on your outgoings.
Let’s say you borrow £180,000 through a 20-year repayment mortgage, with a 2% interest rate, your monthly mortgage repayment would be £911. But if the interest rate increased to 4.5%, the repayment would rise to £1,138 a month.
3 useful steps that could reduce your mortgage repayments
If you’re worried about your mortgage repayments increasing when your existing fixed-rate deal comes to an end, here are three useful steps you may be able to take to reduce your bill.
1. Review your credit report
Lenders will use your credit report to assess how much of a risk you pose. Those deemed less risky will often benefit from a more competitive interest rate. So, taking a look at your credit report and seeing if there are steps you could take before you apply for a mortgage could be valuable.
You can review your credit report for free, and it won’t affect your credit score.
Red flags to lenders that could indicate you’re risky are missed payments, using a high proportion of your available credit, or opening lots of new accounts recently.
Keep in mind that changes to your credit report can take several months to show up.
2. Check your loan-to-value ratio
The loan-to-value (LTV) ratio is the value of your home compared to the amount you’ve borrowed to buy it. For example, if you took out a mortgage with a 10% deposit, your LTV would be 90%.
Usually, the lower your LTV, the more competitive the interest rate you’ll be offered. This is because there is less risk of a lender losing money if you default on your mortgage repayments when you have a low LTV.
Your LTV will gradually fall if you have a repayment mortgage and keep up with the repayments. The value of your home increasing could also help you move into a lower LTV band as the amount you owe relative to the value of your home will fall.
So, understanding how much your home is worth could help you secure a lower interest rate.
3. Extend your mortgage term
When you remortgage, you may review your mortgage term so that you pay the debt over a shorter or longer time frame.
If rising interest rates could mean you struggle to meet your mortgage repayments, extending the mortgage could be useful. As you’ll pay the debt over a longer period, the repayments will fall. However, you should note that by extending the mortgage term, you’ll usually pay more in interest overall.
There may be some restrictions when extending your mortgage term. For example, some lenders will want the term to end before you reach State Pension Age.
A mortgage broker could help you find a deal that’s right for you
There are lots of mortgage providers to choose from when your current deal ends, and they could offer you very different interest rates. We could help you secure a competitive deal that means you benefit from lower mortgage repayments.
We’ll work with you to understand your mortgage needs and which lenders are likely to accept your mortgage application. Please contact us to talk to one of our team about your mortgage options.
Please note:
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
Approver Quilter Financial Services Limited & Quilter Mortgage Planning Limited. 14/03/2024
