Home owners and home buyers are looking for a new mortgage face a rise above 6% on a two year fixed-rate mortgage – this is more than double the average rates two years ago. This means anyone taking out a mortgage deal today on a typical two year fixed rate on a £200,000 mortgage would pay over an extra £65 per month.

Whilst analysts had hoped that interest rates would peak at the current 4.5% the increase from last week was 5%, the 13^th increase in the base rate the Bank of England’s Monetary Policy Committee have authorised in the last 18 months and the chances are that this unfortunately won’t be the last.

For more than 1.5 million homeowners who need to re-mortgage this year, this dramatic increase will add further pressure to already stretched household finances after the Liz Truss mini-budget,   and with some mortgage lenders pulling mortgage deals at short notice, then this makes the situation even more confusing.

While the recent increases in rates are making market conditions more challenging for those looking to re-finance their homes or take out a new mortgage then the market is somewhat different to typical conditions of the late 80’s when the market hit 17%. – borrowers were even more exposed to rate changes as mortgages were predominantly on variable rates which meant that borrowers were really exposed – more than 85% of loans now are on fixed rates, meaning that at least in the short term existing borrowers are more protected, the affordability processes today are much more rigid too meaning that borrowers are better able to cope with the rises – even though they are uncomfortable.

Of course, the higher interest rates from last week won’t impact all mortgage borrowers as many people will be sitting on cheap fixed-rate loans when the base rate was around 0.1%.

Mortgage rates will not start to fall before inflation starts to reduce, and this is taking longer than many people expected. So… what do you need to do if you cannot afford your new rates?

• Your lender may allow you to switch to an interest only mortgage which may allow your payments to reduce in the short term – you will require a plan though to pay off the capital in the long-term
• Some people may consider taking a mortgage holiday, however, think carefully about this, as it is likely to affect your credit rating and may affect your borrowing power in the future
• Ask to see if you can pay off your mortgage over 30 years for example instead of 25 – this will mean you will be paying off more interest in the long-term but will reduce your monthly payments in the short term (older borrowers within limits may also be able to extend their mortgage)
• Although not ideal, use some of your savings, this would not have been the best option when borrowing money was previously so low, but now it may make sense to pay off some of your mortgage, do though check that you do not have any early repayment charges
• Ask for help with your lender who may be able to look at some options to help you

What should you be doing if you need to re-mortgage

• Firstly, you must move quickly as some of the best deals are disappearing fast – if home-owner’s mortgages are coming to an end in the next six months then start making plans to secure a new mortgage. Find out when your mortgage is set to end, as most mortgage lenders will start letting you sign up to a new mortgage rate six months ahead of when it starts to kick in.
• If mortgage rates do end up falling before the new deal starts, a new loan can be secured with either the same lender or a new one at the lower rate.
• If rates were to continue increasing ahead of the deal that you have secured then you have potentially managed to get a great deal in the short term
• If you can stay on a cheap deal, stay put while you can as it is better to stick to the same one rather than fixing on something higher in the expectation that rates will continue to rise
• Use a broker to secure your new mortgage as they will be able to shop around for the best deal, sometimes it is not the best thing to do to stay with your current lender

What are the different types of mortgages that you can take

• fixed rate mortgages – 74% of mortgage borrowers in the UK are on a fixed rate deal, it this is the case you will not be affected by any change in the mortgage rate. When your current mortgage deal comes to and end and you come to re-mortgage, the rate you get is likely to be higher.
• Tracker mortgages – this mortgage rates fluctuate in line with interest rates, so if the base rates increase then your mortgage payment will too – this works both ways though, if the rate reduces then your monthly mortgage payments will too.
• Discounted variable rate – this is a mortgage like a tracker mortgage but instead of tracking the base rate it tracks the lenders own SVR at their discretion – if the base rate rises the mortgage lender can pass on non, a percentage of it or all of it
• Standard variable rate – again, you are paying the rate set by your lender, and it can be very expensive

If you have any questions around your mortgage or are looking to re-mortgage, we recommend speaking to Mortgage Advice Bureau on 01274891312

David Phillip FRICS has been selling properties in North and West Yorkshire for over 30 years – he has seen mortgage rates fluctuate many times across the years. If you would like any confidential advice about selling your home please call 01134 676 400

David Phillip Estate Agents, 86, Leeds Road, Bramhope 01134 676 400 w:davidphillip.co.uk

Covering Bramhope, Adel, Cookridge, Pool-in-Wharfedale, Otley and North Leeds