The Bank of England (BoE) recently voted to increase the UK base rate to 3%. The move marked the eighth consecutive rise from the Monetary Policy Committee (MPC). It was also the largest rate increase since 1989.
With the UK experiencing a cost of living crisis, the rise is an attempt to curb inflation and stabilise an economy rocked by a failed mini-Budget. The former chancellor’s “fiscal event” saw investor confidence evaporate while throwing the mortgage market into turmoil.
Whether you have a variable-, tracker-rate, or fixed-term mortgage, that is due to expire, you will be paying more next year.
Keep reading to find out what the market might look like in 2023, and the important factors you’ll need to consider now.
1. Understand the implications for the mortgage you have
The Independent reports that Santander saw a 30% increase in calls from worried mortgage holders in the week following the mini-Budget. As rates rise, the Financial Reporter states that 48% of homeowners are worried about how they’ll cope.
If you have a variable- or tracker-rate mortgage, your repayments have likely already increased.
Moneyfacts reports that almost 1,000 products vanished from the market after the mini-Budget and those that returned did so at a higher rate.
Existing mortgage repayments are rising. You will also find that your repayments will rise sharply when your current low-cost fixed deal ends. If you are looking to get on the housing ladder as a first-time buyer, you will need to pay significantly more for your mortgage, possibly jeopardising your chances of finding your dream home.
2. Don’t be afraid to ask for help and always plan ahead
If your mortgage increases are putting a strain on your household budget, be sure to speak to the professionals.
At Fingerprint Financial Planning, we can help you to manage your repayments. We can approach your lender to discuss:
- Payment holidays
- Repayment reductions for a set period
- An extension to your mortgage term.
Rates might continue to rise in the short term so consider planning further ahead.
If your mortgage deal is coming to end, you can usually lock in a new one up to six months in advance. You might opt to take this option now. If you are already on your lender’s standard variable rate (SVR) this is likely to be uncompetitive, so be sure to shop around.
Remember that if you have only just started on a new fixed-term mortgage, these are usually for two, three or five years so your payments won’t be rising just yet.
3. Consider overpaying your mortgage if you can afford to
Rising interest rates might be good news for savers, but the rate on your mortgage is likely higher than the interest rate on your savings. You might find that reducing your debt makes the most financial sense if you can afford to.
The benefits of overpaying your mortgage
Overpaying your mortgage means that your debt will be paid off more quickly. The less you owe, the lower your interest payments will be. You could find that as your overall loan value decreases, you gain access to better rates and mortgage deals.
Removing the spectre of a huge debt should also improve your emotional wellbeing.
You’ll own your home sooner, providing security and flexibility when you enter retirement. You’ll know that all of your retirement income can go on providing your dream lifestyle, rather than paying off debt.
Some important points to consider
You’ll need to be sure you have an emergency fund to cover you should the unexpected happen. Once you use your disposable cash to overpay a mortgage, you won’t be able to get that money back.
You’ll also need to weigh up the possible effect of early repayment charges (ERCs).
Mortgage providers will usually allow you to overpay up to 10% of your mortgage. After that, a charge will be payable.
You’ll need to weigh up the cost of the charge against the potential financial savings and the emotional wellbeing benefits (which might be harder to quantify).
Get in touch
If you are worried about what mortgage rates and falling house prices mean for the property market and your finances over the next 12 months, get in touch.
Our team of professional and expert mortgage brokers can help you to navigate a changing market and find the best deal for you. If you have any questions about your mortgage, speak to us now. Get in touch by emailing hello@fingerprintfp.co.uk or calling 03452 100 100.
Please note
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
