Mortgage misery has intensified, as rates continue to climb.
On Monday, the average two-year deal hit 5.72% – up from 5.33% two weeks earlier. For someone with a £200,000, 25-year loan that’s an extra £46 a month – and this might not be the last of it.
There’s a real risk people are forced to make decisions that have a horrible impact on other areas of their finances.
Why have mortgage rates gone up?
The rate spike started when it emerged that core inflation had increased in April. This raised concerns that interest rates would need to be higher for longer, which sent mortgage prices soaring. Now most major lenders have hiked their fixed deals.
There’s still a chance that the market is overreacting, and we’ll see those rates ease off slightly in the coming weeks. However, for more significant movements, we’d need the market to start pricing in interest rate cuts – and that’s unlikely to happen in a hurry. It means higher costs could well hang around for a while to come.
What are your options?
For anyone who needs to remortgage in the near future, the prospect of rising payments on top of everything else is the last thing they need. Our research shows that almost half of those with a mortgage would struggle if their repayments rose as little as £150.
It means we need to do what we can to keep those costs down.
It’s essential to put some time in to shop around for the best available rate. It might make more sense to speak to a broker who understands the market, and can track down the best rate you qualify for. Brokers normally get paid by the mortgage lender when a new mortgage is arranged, meaning you don’t have to pay a fee upfront for their services.
If the best deal you can get is too expensive, you still have options.
You might be able to extend your mortgage period, which will bring down your monthly payments. However, you need to be aware that because you’ll be spreading your repayments over a longer period, there will be more interest to pay. You’ll also be repaying the debt later in life.
You might also be able to switch to an interest-only deal for a period. New guidance for lenders is encouraging them to let borrowers do this on a temporary basis to get them through the cost-of-living crisis, without insisting they have investments in place to repay the loan.
However, if you revert to a repayment deal, you’ll either need to accept higher monthly payments to make up for lost time – or extend the period of your mortgage.
This article isn’t personal advice. If you’re not sure what’s right for your circumstances, seek advice.
The impact of borrowing later in life – what to consider
Borrowing later in life is going to be a reality for an awful lot of us one way or another. First-time buyers are also increasingly likely to be repaying their mortgage in older age. In March, almost one in five first-time buyer deals were for 35 years, and with the average age of getting your first home at 33, it means many people repaying debts well into their late 60s.
This is going to have profound implications for your finances later in life. It’s often the final decade in work when people have the available income to focus on their pension.
A combination of the empty nest and having paid their mortgage off means they can put more into their pension, and retire with the income they need. With their offspring likely to spend longer at home, and property debts weighing them down until they retire, they might miss this window entirely.
How much should I pay into my pension?
It means we can’t rely on last-minute pension top-ups to secure the retirement income we need. If this was part of your plan, it’s worth revisiting it sooner rather than later.
4 tips to boost your retirement savings in a cost-of-living crisis
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