Many fixed rates mortgages are expected to end soon, with about half a million fixed rate mortgages expected to come to an end during the rest of 2023.
The majority of these fixed rate mortgages were set at a rate of 2% or lower, however increasing rates means that homeowners are likely to suffer additional monthly expenditure.
As a Bolton estate agent we know it is imperative that people whose mortgage rates are coming to an end, make plans now to ensure they get the best deal going forward.
The good news is that mortgage rates are falling, with a number of major lenders making cuts recently. Moneyfacts data shows that the average two-year fixed rate mortgage hit a recent peak of 6.85% at the start of August, but has since dropped back to 6.38%. The average five-year mortgage, meanwhile, is now below 6%.
Virgin have just advertised a five year fixed rate of 4.71% which is said to be one of the best deals on the current market.
Similarly the forecast rate of inflation increase hasn’t been as severe as people feared and this is starting to trickle down to the mortgage market.
Unfortunately, there’s a high likelihood that mortgage rates are still far higher than the fixed rate you’re moving from. The Financial Conduct Authority (FCA) has calculated that monthly mortgage payments could go up by £340 on average.
Experts are saying that while mortgage rates may come down slightly there is unlikely to be a dramatic shift in the near term.
If you have a mortgage coming to an end, you have a few options.
Fixed or Variable
The first question to consider is whether you prefer to switch to a variable rate deal, or find a new fixed rate.
Variable rates are popular, because there’s every chance that mortgage rates will fall during the coming year or so, and if this were the case any savings will be passed on quickly.
However, there are no guarantees, and if inflation proves higher than expected and the Bank of England raises rates again, you could see your monthly payments actually rise.
Some people prefer to fix, on the understanding that they may well end up paying more over the fixed term than they would in a variable rate deal, but at least they have certainty that the rate won’t rise.
The answer to whether you choose fixed or variable depends upon your attitude to risk and as such how valuable certainty is for you.
When to agree the deal?
You also need to decide when to lock in your deal. The FCA has told banks they should be allowing you to agree a rate up to six months’ before your current deal expires.
It may make sense to do so as early as possible. If rates fall as expected, you can continue to shop around for a better one closer to the time and switch if necessary. However If conversely interest rates increase, you’ll have a better deal locked in.
For many people sadly irrespective of the deals around the new rates may make their repayments unaffordable. If this is the case the FCA has issued guidance encouraging lenders to be more sympathetic and flexible.
Consider Extending the Term to Reduce your Monthly Repayments
It may be possible to extend the term of your mortgage for a while, in order to lower the monthly payments, without going through a full affordability check.
For example So if you have 25 years left to run on your mortgage, you may be able to increase it to 30 years, and pay less each month.
However, you need to consider whether this is reversable and whether you will be able to shrink it again and increase your payments to make up for lost time, or will you end up with a permanently longer deal? If you end up paying it for longer, it means paying more interest overall.
Move to interest-only payments
You could also consider moving to interest-only payments on a temporary basis, which the FCA has made simpler right now.
However, again, you need to work out what will happen when this arrangement comes to an end. Will you be able to increase your payments, or will you be forced to extend the mortgage term?
A longer mortgage isn’t the end of the world, but you need to consider the implications before taking the plunge.
There’s a lot to consider, but try to make a decision as early as possible. If you leave it too late you could slip onto a standard variable rate in the interim and you’ll accidentally end up with the highest possible mortgage rate at the worst possible time.
Source: Yahoo Finance an article by Sarah Coles – a personal finance analyst at Hargreaves Landsdown.
For professional mortgage advice or advice about selling or renting property contact The Purple Property Shop, a leading Bolton estate agent on: 01204 598979 or email enquiries@purplepropertyshop.com
