Your Fixed-Rate is Coming to an End. And Now What?
The Bank of England has sounded the alarm: a significant number of fixed-rate mortgage deals are expiring soon, leaving hundreds of thousands of homeowners facing a potential increase in their monthly payments. The concern is real, with the Bank of England base rate climbing and financial uncertainty still on the horizon. However, this guide aims to arm you with actionable steps to navigate this financial challenge successfully.
The Market Reality
According to the Bank of England, an estimated 700,000 UK households will experience an average monthly mortgage payment increase of £220. This follows a base rate hike to 5.25%, a figure not witnessed since the 2008 financial crisis. Additionally, a joint report by Grant Thornton and Retail Economics predicts that disposable incomes across UK households will decline by a staggering £15 billion in the next ten months.
To better understand the situation, let’s take a look at quoted household interest rates. For those unfamiliar with the term, “quoted household interest rates” refer to the interest rates that financial institutions charge for lending products to households. In this specific case, we will look at 2-year fixed-rate mortgages by Loan-to-Value (LTV) ratios, ranging from 60% to 95%.
As you can see, rates charged to households have been on an upward trend across all LTV categories, underscoring the urgency for homeowners to act swiftly in securing a new mortgage deal.
The Psychological Impact: Why the Fear is Real
The end of a fixed-rate mortgage deal can bring about financial stress, affecting your ability to afford leisure activities like holidays. Still, it can also extend to essentials like groceries or childcare. While fear is a natural response, it can also serve as a powerful motivator for taking action.
What Can You Do?
The situation may seem daunting, but it’s not without solutions. Let’s explore various strategies you can employ to mitigate the impact of your fixed-rate mortgage coming to an end.
Start Early: Be Proactive
Procrastination is your enemy. Most mortgage providers allow you to secure a new mortgage rate three to six months before your current fixed-rate term concludes. Utilise this period to research and lock in a deal that aligns with your financial goals.
Consult Your Current Lender: Loyalty Can Pay Off
Before shopping around, consult your existing lender. They may offer a new deal that is competitive or even superior to options available on the open market. A simple conversation could save you the time and effort of switching lenders.
Seek Professional Advice: Why a Mortgage Broker Can Help
The mortgage landscape can be a complex maze. Consulting a mortgage broker can provide you with personalised advice, clarifying the deals available to you, given your specific circumstances. Remember, not all brokers charge customers a fee.
Know Your Home Equity
One of the most effective ways to prepare for the end of your fixed-rate mortgage is to understand the current value of your home and how much equity you have.
Ahauz’s free home equity tracker can help you get a clear picture of your home’s current value and your available equity. Knowing it can open doors to various financial strategies, from remortgaging to making overpayments.
Your home equity can be a powerful tool; by understanding it, you’re not just preparing for the end of your fixed-rate period, you’re taking a significant step towards long-term financial stability.
Overpay Your Mortgage: A Strategy for Long-Term Relief
If your finances allow, consider making overpayments on your existing mortgage to reduce the principal amount. This strategy can soften the blow of increased interest rates when transitioning to a new mortgage deal. However, always check for any overpayment penalties with your lender.
Budgeting for the Future: Financial Resilience in Uncertain Times
Begin adjusting your budget to account for the anticipated mortgage payment increase. Identify potential areas for cost-cutting and reallocate those funds towards your mortgage payments.
Temporary Relief Measures: Short-Term Solutions for Immediate Needs
Some mortgage providers offer temporary relief options, such as switching to interest-only payments for a limited period. While not a long-term solution, these measures can provide immediate financial relief.
Side Hustles and Additional Income: Every Little Helps
If reducing expenses doesn’t suffice, consider alternative income streams. Whether it’s a side hustle, freelance work, or negotiating a salary increase, additional income can help offset increased mortgage payments.
Most things in life have a solution
The end of your fixed-rate mortgage period may seem like a dark cloud, but it’s not an impossible challenge. Adopt a proactive approach and make informed decisions to turn a potential crisis into an opportunity for financial growth and stability.