Is the mortgage market volatility getting you down? Have you got a mortgage-related question you need answering? Email in and we’ll get one of our experts to reply. Nick Mendes, mortgage technical manager at John Charcol, has given his advice to a reader below. If you have a question for our experts, email us at [email protected].
Question: We are one of the many whose mortgage ends in 2024. It’s still nine months away but we’re worried as we’re coming off a rate of less than two per cent, and are expecting to pay above five per cent. Our mortgage was initially £200,000 – so this will be a big jump in price. What should we be planning now to make sure the transition is as smooth as possible?
Answer: For homeowners whose fixed rate mortgages are set to expire in 2024, the prospect of transitioning to a higher mortgage rate may be a cause for concern.
You’re not alone in this situation, as you acknowledge, because almost everyone who is moving on to a new mortgage next year will face higher rates than they did in the past.
This is because, before late 2021, the Bank of England base rate, which has a major impact on the rates that mortgage lenders offer, had been at a very low level for a number of years.
For 12 years between 2009 and 2021, it remained below one per cent, and this meant that the rates lender charged people to borrow were very low.
Since 2021, the rates started to increase. They appear to have hit their peak for now, but even if they start to fall, they’ll still be dramatically higher than most people have experienced in the past decade or so, because they’re falling from such a high level.
This isn’t just a blip. We shouldn’t expect interest rates to reach the levels they have been at for the past decade in the near future. That was the exception rather than the rule.
While rising interest rates are a natural part of the risk when taking out a mortgage, it’s essential to be prepared and have a plan in place to ensure you’re financially stable by the time your payments are due to increase.
If your current mortgage rate is due to end in six months or less, you’ve just moved onto your lender’s standard variable rate, or you want a more competitive deal, you may want to consider a product transfer or remortgaging.
A mortgage product transfer enables you to change your existing mortgage product to a different one while staying with the same mortgage lender.
To “remortgage” means to switch from one lender to another getting a new deal in the process, while you’re still in the same property.
You can apply to remortgage your home at any time, but it should be a decision that you’ve put a lot of thought and research into. Typically, the best time to remortgage would be when your current deal is coming to an end – as this would avoid any early repayment charges.
I typically recommend mortgage holders start to look at remortgaging at least six months before the end of their current deal. This way, you can be sure you’ll have plenty of time to set everything up and have it ready to go the day after your current product ends.
The first step in preparing for the end of your fixed mortgage rate is to understand your current mortgage terms, this will be the loan balance to determine how much you owe when you come to the end of your deal. This will be useful when comparing refinancing options in the future and the current interest rate.
The next step is to budget for higher payments. Here’s what you should be doing in preparation:
- Start to calculate the potential payment increase: Do a search for online mortgage calculator online and it’s a worthwhile experiment to understand how a higher rate can impact your monthly mortgage payments.
- Review your financial goals: Consider how the potential increase in mortgage payments could affect your saving plans and reassess your budget.
- Be prepared to dip into an emergency fund: If you don’t have one, you could try and save towards one to help cover unexpected expenses or income disruptions that may arise due to higher mortgage payments.
Before making any financial decisions, it’s wise to seek advice from an independent whole of market mortgage broker.
A broker will be able to guide you through which options are best for your circumstances. They’ll also keep you informed in the event rates reduce, meaning you’ll have peace of mind knowing you’re getting the best deal on the market.
You are doing the right thing in planning early, and you can’t do anything more than that, as we don’t have control over financial markets and interest rates.
Best of luck to you in 2024, and be assured that by planning early, you’re creating the conditions for the best financial situation for yourself and your family.
