Martin Lewis’ Money Saving Expert team has issued urgent advice following the recent base interest rate hikes. The pound plummeted to a record low against the dollar on Monday after pledges of more tax cuts from the new Chancellor Kwasi Kwarteng, on top of Friday’s mini-budget when he announced the biggest tax cuts for 50 years – at a time of record high inflation.
As a result, some mortgage deals have been withdrawn by banks and building societies. Virgin Money and Skipton Building Society halted mortgage offers for new customers, but said submitted applications would still be processed, whereas Halifax said it would stop mortgages with product fees.
Mortgage holders coming to the end of their fixed rates of interest will soon be navigating higher rates with fewer loans on offer than when they were last in the market, particularly if they agreed their mortgage between March 2020 and December 2021 when the Bank of England’s base rate was at its all-time low of 0.1 per cent. The markets are now working on the fact that the base rate could rise to nearly 6% by next spring.
Speaking on the crisis, the Money Saving Expert team said: “If those rate predictions ring true (and the markets are not always right), without any further measures, that would likely push millions renewing when their fixes end into ‘can’t pay my mortgage’ territory, with its own knock-on effects for the economy.
“So, no surprise the mortgage market is in turmoil. Some big lenders – such as Virgin Money, Skipton, Halifax and Santander – have pulled deals completely from the market, meaning less choice for mortgage switchers. Others are being replaced by ones with more expensive rates.
“The situation is nearly unprecedented, what’s happening is changing very fast, and is extremely uncertain (not the first time we’ve written similar in recent years). We’ll do our best to guide you through some sensible moves, but no one really knows what’s coming next.”
Key questions answered by Martin Lewis’ money experts:
Should you act now? “It’s a tough call. Normally we’d caution against knee-jerk reactions on the back of what’s happening in the financial markets. However, with rates being repriced constantly, if you are in the position where you are free to get a new mortgage (such as those coming to the end of a fix, or already on a standard variable rate), it’s worth checking, and doing so immediately. Let’s take you through what to do…”
1. On a variable or tracker rate?See if you can ditch, switch and save
“Once you know your new mortgage rate following the base rate rise, check urgently to see if you can ditch, switch and save – and act quickly, as today’s rates are currently being rapidly reviewed and increased. This is especially likely for those on standard variable rate (SVR) mortgages.”
2. On a fixed rate mortgage?Check when it ends and remember to act 3 to 6 months ahead
“Fixed rate deals typically last two, three or five years (a few may be longer). We’re often surprised how many people don’t know when theirs will end – and this isn’t a good time for surprise. So make sure you know and note it down.
“If you’re coming towards the end of your deal, act NOW. Some lenders let you lock in a rate six months in advance – and many more let you lock in three months ahead. If your fix ends before March 2023, check deals now, as rates are likely to rise further, and today’s rates may soon disappear.”
What if your fixed deal isn’t ending soon, can you still switch?
“It’s not surprising many are asking this question when rates are rocketing. The concept is ‘should I ditch a little time on my current cheap fix, to lock in for longer and prevent hideous rises in future?’ On the surface it looks a sensible question, but there are a number of things to consider:
– Early repayment penalties: Ditching your fixed rate mortgage before it ends will normally result in an early repayment charge – something that can cost you £1,000s and, in normal times at least, make ditching a fix prohibitive.
– You’re taking a bet on future rates: While it looks like they are going to be far, far higher in future, if there’s anything the past few years has taught us, it’s that unknown unknowns could flip that around at speed. There are no guarantees, and without a crystal ball, we don’t know how much rates will rise by.
“If this is something you’re considering, we’d push you to speak to a mortgage broker, who can run you through the pros and cons to see if it’s worth it.”
3. Can you overpay your mortgage?If you can afford to, the savings may be huge
“Most lenders allow those in the middle of a fixed or variable deal to make mortgage overpayments, though this is normally capped, typically at 10% of the outstanding balance each year.
“Overpaying means you clear the mortgage quicker, which means you pay less interest in total – and savings can be huge. Plus as you’ll owe less, you may be able to get a cheaper deal when you come to remortgage.”
4. Ever thought of downsizing?Some may balk at the idea, but it could rid you of your loan
“Inflation is a funny thing. When we talk about food inflation, petrol inflation, energy inflation – we hate it. Yet often property price inflation is celebrated.
“However, while homeowners may feel rising prices make them feel secure, it’s a bit meaningless until you come to sell (or you remortgage to use the equity in your home – that just means bigger debt though). And even then if you’re selling to upgrade, rising property prices mean you’ll need to find more money to jump that gap.
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“So with the huge rise in prices in many parts of the UK, and mortgages getting more expensive, it’s worth thinking if you’re in the position to downsize. It’s likely this will especially suit any empty-nesters whose kids are now independent adults – with big houses for few people.
“We know some will balk at the mere idea, but it’s just a thought.”
5. Get help if you’re struggling to pay.Avoid missing repaymentswithout first speaking to your lender
“With the cost of living increasing, many homeowners are struggling to meet their mortgage repayments. Missing a mortgage payment is known as falling into ‘arrears’. You want to try to avoid this as best you can, as it’ll have a serious impact on your ability to get credit in future.
Full info on what wider support is out there in our Mortgage arrears guide, but in brief:
- Change the terms of your mortgage – you could agree with your lender to extend your mortgage term, so you have longer to pay off your debt, or switch to an interest-only mortgage to cut repayments. This might provide some relief, but will increase costs.
- Get help with your mortgage repayments – if you’re on certain benefits, such as universal credit, you may be able to claim support for mortgage interest.
- Get free, one-to-one debt-counselling help – the likes of Citizens Advice, StepChange or National Debtline can help you understand your options, and if you need emotional support, try CAP instead. You may also find the MSE Mental Health & Debt guide useful.”