As concerns mount over interest rate rises, Samuel Gee of Manning Gee Investments offers some timely advice to worried Bristol mortgage holders.

Published On: June 21st, 2023

Are you struggling with rising mortgage rates?

Mortgage rates have risen to their highest levels since the government’s controversial mini budget late last year.

This has created huge uncertainty for cash-strapped homeowners across Bristol who are already struggling with the cost-of-living crisis.

The average mortgage rate for a two-year fixed deal has risen above six per cent, according to the financial information firm Moneyfacts. And the average five-year fixed rate mortgage has increased to around 5.6 per cent.

The steep rises follow dire warnings by consumer champions of a ticking mortgage time bomb as people’s existing fixed-rate deals come to an end.

If you’re coming to the end of a fixed-rate term and facing higher interest rates, here is some advice you can consider:

Start planning early: As your fixed-rate term nears its end, it’s crucial to start planning ahead. Give yourself ample time to research your options before making any decisions.
Review your financial situation: Assess your current financial position to determine how the increased rates will impact your budget. Consider factors like your income, expenses, and other financial obligations to understand how much you can afford to pay.

Use online mortgage calculators or consult with your lender to determine the impact of the higher rates on your monthly payments. This will give you a clear understanding of the affordability of different mortgage options.

Compare mortgages: Take the time to do your homework on the different mortgage options available to you. Look for lenders offering competitive rates and terms that align with your financial goals. Don’t limit your search to just one lender – explore multiple options to find the best fit for your needs.
Consider switching to a variable rate: While interest rates are higher now, they may change in the future. Assess whether switching to a variable-rate mortgage might be more advantageous for you. Variable rates can fluctuate with the market, and if rates decrease over time, it could potentially save you money.
Ask an expert: Seek guidance from a mortgage adviser or financial professional. They can provide personalised advice based on your specific circumstances and help you navigate the current market conditions. They often have access to exclusive mortgage deals that are not publicly available.
Prepare for higher payments: If all other options are exhausted, prepare yourself financially for the possibility of higher mortgage payments. Review your budget and make necessary adjustments to accommodate the increased costs.

Cut down on non-essential expenses and explore ways to increase your income if feasible. That streaming service subscription and those take-away coffees can really add up.

Borrowers with interest-only mortgages are also facing higher costs. This is because interest-only deals only require borrowers to pay interest on the outstanding balance of their loan, rather than both interest and capital. As a result, higher interest rates can lead to significant increases in monthly payments.

For example, a borrower with a £150,000 interest-only mortgage on an interest rate of 1.5% would have paid £187.50 per month. If that reverted to a standard variable rate of 6.5%, the monthly payment would increase to £812.50. This could be a significant financial burden for borrowers, especially those who are already struggling financially.

There are a number of options available to borrowers who are coming to the end of their interest-only mortgage term. You could:

Remortgage to a new interest-only mortgage with a higher interest rate.
Switch to a repayment mortgage, which will require you to pay both interest and capital each month.
Sell your home and use the proceeds to repay the mortgage.
Set up a repayment plan to repay the mortgage over time.

Lenders have tightened their belts over recent years when lending to interest-only borrowers, which means you may not be able to get the equivalent deal to that of a repayment borrower. In the worst case, you may be stuck on your lender’s standard variable rate, which could have a significant impact on your monthly payments.

Whether you are on a fixed-term or interest-only mortgage, it’s important to remember that everyone’s financial situation is unique. So it’s crucial that you consider your personal circumstances and seek professional advice to make the best decision for your specific needs.

As concerns mount over interest rate rises, Samuel Gee of Manning Gee Investments offers some timely advice to worried Bristol mortgage holders.