Why you need to review your mortgage now and the support a lender should offer you
With the average 2 year fixed mortgage rate in the UK reaching a 15-year high of 6.6%*, homeowners face critical decisions regarding their mortgage arrangements. In this blog post, we aim to shed light on the importance of reviewing your mortgage early and the support that lenders should offer during this crucial period
By understanding the steps you need to take and the potential consequences of inaction, you can secure your financial future and make informed decisions. Let’s explore why it’s essential to act now and how you can navigate the changing landscape of mortgage deals effectively.
What you need to do
It’s important to make a note of the current mortgage product end date, the current interest rate and monthly payment. If mortgage holders find their current mortgage product is due to end within 6 months, they need to speak to mortgage adviser now. If they have a longer period left on their current mortgage product, they may want to speak to an adviser now or at least put a note in their calendars to speak to an adviser once they are at the 6-month point.
After speaking to a mortgage adviser, they should, like Clever Mortgages, make a note to contact the customer once they are within 6 months of their mortgage product ending.
What happens if I don’t do this?
Once a mortgage holder comes to the end of their current mortgage product, most revert to the lenders Standard Variable Rate (called SVR). The current SVR rates are averaging 8.45%**. Imagine the impact if they are currently on a 2% fixed rate and move to an 8.45% rate.
What does an increasing interest rate mean?
The impact can be seen by using our remortgage calculator, just enter the current mortgage term, current mortgage balance, £0 additional borrowing, current monthly mortgage payment and then an interest rate of 8%.
A £100,000 mortgage over 20 years at 2%, would have an approximate monthly payment of £506. At 8.45% this becomes £865. £359 per month more, over £4,000 per year.
A £200,000 mortgage over 20 years at 2%, would have an approximate monthly payment of £1,012. At 8.45% this becomes £1,730. £718 per month more, over £8,500 per year.
This is further compounded the greater the mortgage balance and/or the shorter the mortgage term.
Are the increased rates going to come down again?
With so much uncertainty, it may be tempting to opt for a variable deal in the hope that interest rates start to come down again. Since 2008 interest rates have in fact been abnormally low, but over the last 15 years, we have all become used to them as the norm.
For a few hundred years prior to 2008, rates have been roughly what they are today, with a few higher peaks along the way. There is certainly no guarantee that interest rates will drop to the levels of the last few years.
If you need it, help is out there!
Firstly, you may want to talk to your mortgage broker if you have concerns about your mortgage. They might be able to offer you advice before you talk to your mortgage lender. However, if you are immediately struggling your lender could be your best option.
With interest rates having risen significantly as part of the Bank of England’s attempts to tackle inflation, a new “Mortgage Charter” has been brought in to help homeowners worrying about having to pay more.
You can read more about the Mortgage Charter here.
How can the Mortgage Charter help?
One feature came into effect on Monday 10th July that could save mortgage holders money.
Mortgage holders approaching the end of a mortgage deal, such as fixed rate product, will now have the chance to ‘lock’ in a new deal up to six months ahead.
They will also be able to manage their new deal and request a better like-for-like deal with their lender right up until their new one starts – if one is available.
This essentially means the borrower can hedge their bets:
- If interest rates go up before your new deal starts, then borrowers who’ve locked in from the start will be paying a lower rate than otherwise.
- If rates drop, then they are free to ditch the deal they’ve locked in and instead opt for something better. You need to double check there aren’t any fees involved for this process. Even if there are, they could still be worth paying.
This is were a mortgage adviser can really help you with staying with your existing lender, reviewing the products or moving to a new lender.
Further information on the Mortgage Charter
- Approximately 90% of the mortgage market has signed up.
- From 26th June, a borrower will not be forced to leave their home without their consent unless in exceptional circumstances.
- A new deal between lenders, the FCA and the Government permitting customers who are up to date with their payments to either switch to interest-only payments for six months or extend their mortgage term to reduce their monthly payments (which means paying more interest in the long run).
- Customers will also have the option to revert to their original term within six months by contacting their lender.
In conclusion, the current surge in mortgage rates calls for immediate action from homeowners.
It is crucial to note important mortgage details, such as end dates, interest rates, and monthly payments, and seek guidance from mortgage advisers when needed. Being aware of the potential impact of reverting to the Standard Variable Rate (SVR) and understanding the consequences of increasing interest rates is essential for making informed decisions.
Remember, time is of the essence. By acting now and staying proactive, you can protect yourself from potential financial hardships and take advantage of favourable mortgage terms.
Secure your financial future by reviewing your mortgage arrangements today. With careful consideration and the support of trusted professionals, you can navigate the evolving mortgage market and make choices that align with your long-term goals. Your financial stability and peace of mind depend on it.
*According to Moneyfacts data from 11 July 2023
**According to Uswitch as of 11 July 2023