I’m a mortgage expert – how to reduce your bill now over fears interest rates will soar
HOMEOWNERS should take steps to cut their mortgage bills as soon as possible, a broker has warned, amid worries the base rate could rise again.
Rhys Scofield founder of advisers Peak Mortgages said now’s the time to plan for a world where mortgage costs are more expensive.
Mortgage rates have rocketed in recent days as lenders pull deals and up prices in response to market turmoil.
The crashing pound has heightened expectations the Bank of England will drive up the base rate sooner and steeper than previously expected.
Higher rates mean repayments for borrowers become more expensive. And some mortgage rates have already reached six per cent in recent days.
However, there are ways to combat rising mortgage costs.
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If you are coming up for remortgage, it’s now extra important to be prepared and make sure you don’t land on your lender’s expensive Standard Variable Rate (SVR) at the end of your deal.
As costs rise, it's more important than ever to find the best value deal.
Borrowers should be thinking about their next mortgage up to 12 months before their current fixed rate ends, according to Rhys.
Depending on the lender, deals can be reserved between six and nine months in advance.
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And locking in a mortgage rate before your deals ends could be a savvy move if rates rise in line with predictions.
Even if you have more than one year left on your mortgage, Rhys says it’s worth a conversation with a mortgage broker to see if paying an early repayment fee could help avoid higher repayments in the future.
He says: “Talk to a broker to get the ball rolling. A good mortgage broker will search the market and find the best and cheapest deal for you. Rates are changing quickly, so it’s near impossible to do your own research.”
In the current market, lenders are taking deals off sale with little or no notice at all, meaning time is of the essence to bag the best rate.
A mortgage broker will help get your application submitted fast.
Borrowers can help speed up the process by gathering recent wage slips, bank statements and any other documents needed for their application as quickly as possible.
One way of cutting monthly repayments is to lengthen the mortgage term.
Rhys says: “Standard terms are often 25 years but as long as you’re not too close to retirement you can have terms as long as 35 or even 40 years.”
You can also use your savings to keep down costs through an offset mortgage.
These deals reduce the amount of mortgage debt subject to interest in line with savings kept in a linked account.
Rhys adds: “Offset mortgages seem to have been forgotten but the saving you would make in interest can be higher than the sum you’d earn keeping the same cash in a savings account.”
Interest-only mortgages have lower monthly repayments as borrowers don’t repay any of the underlying debt. These deals are less widespread since the financial crisis but can work in some cases where there is a proven means for paying back the mortgage.
Rhys suggests that people who are in a fix, and have the financial space, consider making regular overpayments on their mortgage.
Most lenders will allow borrowers to pay up to 10 per cent extra off their loan in a year.
Rhys adds: “Doing this helps homeowners get used to higher monthly repayments, which will make it less of a shock if they change to a higher rate at the end of the fix.”
Overpaying also reduces the debt and repayments for the future. This is especially helpful if it means you are able to move to a lower loan to value bracket, which typically comes with lower rates.
In some cases, a mortgage can help people struggling with their wider outgoings.
“It could be worth adding unsecured debt to a mortgage. A £300 minimum credit card repayment is going to be much lower when stretched out over a mortgage term,” Rhys says.
“It’s not ideal – but it can make the difference between being able to afford your outgoings and not.”
Rhys has also seen customers raising additional money from their mortgage to make green improvements to their home which will help cut energy costs.
He says: “When we’re looking at a mortgage we can look at how to bring outgoings down across the board. A solar or heat pump helps homeowners get rid of energy bills altogether and we’ve seen borrowers using their mortgage in this way.”
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Anyone struggling with their mortgage repayments should work out options with their lender with the help of a broker.
It’s best to talk over any potential problems sooner rather than later, as this typically means lenders provide more options such as payment holidays.