Steps to take NOW if your fixed-rate mortgage is coming to an end
If you’re one of the almost one million Brits whose fixed-rate mortgage deal is coming to an end this year, you might be feeling vulnerable to rising monthly payments. But before panicking, there are steps you can take to help yourself during this time. We will guide you through the most important things to do if your fixed-rate mortgage is coming to an end.
Check When Your Current Mortgage Deal Ends
The first thing to do is to look ahead and see exactly when your fixed-rate deal will come to an end. Check how much you pay each month currently, and what your outstanding mortgage balance will be at the end of the contract. Knowing how much you currently spend will help you work out how much extra you need to budget for when moving to another deal, and you will need to know your mortgage balance when applying for a new deal.
Take a Look at What Mortgage Deals Are Being Offered Now
Next, look into what mortgage rates are currently being offered on the market. Don’t wait until your current deal comes to an end, as most lenders allow you to secure a deal up to six months in advance. It’s best to start sooner rather than later, as rushing to secure a deal could leave you worse off. Lenders are reducing mortgage products and deals on a daily basis, so act quickly to ensure you get the deal you want.
It’s worth seeing what your current lender could offer you. This is when you simply switch over to a new deal with the same lender when you’re existing one ends and it is not the same as automatically shifting onto the SVR rates. This often makes the remortgaging process quicker and easier, as you won’t need to provide as much paperwork. It may also mean you incur fewer fees. Some lenders offer existing mortgage customers exclusive rates that aren’t available to the general public, so it’s always worth contacting your lender to find out.
However, you should not agree to a deal with your current lender until you’ve shopped around. Use a comparison website to compare the fixed rate lengths, monthly costs, total costs and fees of different mortgage deals via alternative lenders.
Seek Help from an Independent Mortgage Broker
After benchmarking the rates available, it’s worth seeking professional advice. A mortgage broker will assess all of your options, advise you on which is most suitable, and support you throughout the application process. When choosing a new mortgage, you will also need to decide whether you want to pay a fixed rate of interest for a certain period, or a variable or tracker rate that can move up and down.
If you opt for a variable-rate mortgage, your monthly payments will fluctuate in line with any base rate changes. This leaves you at risk of even higher monthly repayments if the base rate rises even higher in the coming months. However, the base rate is predicted to drop in 2024, and this means there’s potential to secure a lower rate next year by opting for a variable-rate mortgage now and fixing once the base rate hopefully falls. Mortgage holders should only choose a variable-rate mortgage if they’re financially able to take on the risk of further rises this year. If not, you may be better off fixing your mortgage and benefiting from the reassurance of consistent payment and protection from further rises.
Decrease Your Monthly Mortgage Payments
If you are going to struggle to keep up with the new payments when your new mortgage deal comes into play, you may want to look at ways you can reduce your monthly payments. Since July 10, the Mortgage Chart came into effect, and this is an agreement between the Government and major lenders on the help that mortgage holders can get during this time. Although this support does not cover those with a Buy-To-Let mortgage.
As part of the Mortgage Charter, people can switch their mortgage deal to an interest-only plan for up to six months. This will temporarily bring down the monthly payments, and they can switch back to their original deal with no impact on their credit score. Brits can also extend the term of their mortgage too. Spreading out the amount owed over a longer period of time means you’ll reduce your monthly repayment but pay more interest over the long-term. You will be able to cut back your terms at a later date once rates become more affordable, should you so choose.
You may also be entitled to a mortgage payment holiday if you find yourself struggling to keep up with your mortgage repayments. Mortgage payment holidays are great to relieve some of the financial difficulties you might be experiencing in the short term, often lasting between one and six months. Once the payment holiday ends, your repayments will be higher as the interest will continue to rack up on the outstanding balance of the mortgage, so it’s worth ensuring you’ll be able to afford the costs later down the line.
Prepare for Higher Monthly Mortgage Repayments
The Bank of England has reported that households coming off fixed deals in 2023 will see their repayments go up by an average of £500. Being prepared for this could spare you a nasty financial shock. If you can identify areas where you could make spending cuts, having a strict budget is key to navigating choppy financial waters.
Finding ways to increase the money you have coming in could also help lessen the effects of a mortgage shock. This could take the form of a side hustle, or even asking for a pay rise at work. See all of our tips for boosting your income. It’s important to work out exactly how much your mortgage repayments will increase when your new deal starts.
For households with some room for manoeuvre in their finances, the effect of a higher mortgage rate may not be that dramatic; it may just be a case of saving or investing less money each month. However, for other mortgage customers who are grappling with significantly more stringent budgets, even the smallest of rises in living expenses could derail them unless they find ways to balance their income and outgoings.
Lock In a New Mortgage Early
Depending on the lender you go with for your new deal, you may be able to lock in a new rate three to six months in advance. When your current fixed-rate mortgage ends, you will automatically be moved onto the rate you have pre-selected. This means you will be protected in the event that interest rates increase in the meantime.
However, the opposite could happen, and rates could fall before your current deal ends. As long as the new one hasn’t already begun, some mortgage providers will allow you to cancel your fixed-rate mortgage deal without paying a fee. This means you can find another, cheaper deal. Some lenders don’t allow a shift once an offer has been accepted, whereas others may allow a move to another rate if things change. It’s, therefore, important to check with the lender whether they will be flexible on this should rates fall after you have accepted the offer.
If they will be, locking into a rate in advance can be a win-win. Should the cost of borrowing increase across the market, you are protected. If rates go down, you can cancel and jump ship. It’s worth bearing in mind that if you do decide to cancel a deal and go with another lender, you will have to undergo affordability checks all over again. This may be an issue if you don’t have a good credit history.
Speak to Your Mortgage Lender
If you’re worried about rising mortgage costs at the end of a deal, don’t be afraid to contact your lender. Borrowers can now switch to interest-only payment terms for up to six months under temporary support. Credit scores will not be affected. You may also be able to take advantage of exclusive rates that aren’t available to the general public or sometimes even brokers.
It’s important to remember that lenders have a duty of care to ensure that borrowers can afford their mortgages and that they are not put in a position of financial distress. Following the recent jump in mortgage rates, some lenders have agreed to support measures to help homeowners who face significant increases in their monthly payments. Under the terms, borrowers will be able to temporarily switch to an interest-only mortgage to reduce their outgoings for up to six months. Lenders also agreed to a 12-month delay before taking repossession proceedings against borrowers unable or unwilling to pay over the long term.
Conclusion
If your fixed-rate mortgage is coming to an end, it’s essential to be proactive and take steps to secure a new deal to avoid being moved to a higher variable rate. Check when your current deal ends and start researching new deals as early as six months in advance. Speak to a mortgage broker to assess all your options, and don’t forget to seek help from your lender if needed. Prepare for higher monthly repayments and consider ways to decrease your payments if necessary. Lock in a new mortgage early and be aware of the risks and benefits of a variable-rate mortgage. With the right approach, you can secure the best possible deal and avoid any nasty financial shocks.