Mortgage clients typically read negative headlines regarding interest rates, and the Bank of England has now raised rates to 5.25%.
According to UK Finance, 1.6 million UK homeowners with fixed rates will have their agreement expire by December 2024, and these people would pay more when they remortgage.
Additionally, another interest rate increase would probably result in an instant increase in the monthly payments for more than 1.4 million customers on tracker and variable rate packages.
How to manage your mortgage better
Here are some suggestions for managing with rising prices with the assistance of some of the top mortgage specialists in the UK.
- If at all possible, overpay now
If you still have time left on a cheap fixed-rate mortgage, you might want to make it more advantageous for you right now.
Most lenders would accept overpayments of up to 10% annually, but David Hollingworth of mortgage brokers London & Country advises keeping some money aside as a contingency fund because it won’t be as convenient to access after being used to pay down the mortgage.
Savings can accumulate and produce interest, which can be used to pay off some of the mortgage before negotiating a new agreement.
- Use interest-only financing
If you have an interest-only mortgage, it indicates that you are only making interest payments on the amount you have borrowed and not making any principal reductions.
According to Richard Dana, CEO of online mortgage broker Tembo, switching to an interest-only mortgage can help you maintain a manageable monthly payment schedule.
However, he cautions, “it’s preferable to utilize this as a temporary fix, since otherwise, you will be required to pay your remaining mortgage sum at the conclusion of your mortgage term.
Your eligibility will be based on your income and the equity you have in the property.
A expanding family or those who live in a small apartment might not find this to be a viable alternative.
However, for senior mortgage customers whose children have left the nest, downsizing and purchasing a smaller home may be able to reduce the size of the mortgage or even eliminate it entirely.
According to Rachel Springall of the financial data company Moneyfacts, “Consumers looking to re-mortgage may find it difficult to afford higher interest rates, so seeking independent advice is essential to consider every option available to them, such as downsizing.”
- Lengthen the loan’s term
25 years is the standard mortgage length, but 30 and even 40-year durations are being offered.
According to David Hollingworth, extending the term can assist lower the monthly payment but result in hundreds of pounds more in interest over the course of the loan.
As your circumstances change, “make sure you regularly review whether you could cut the term back again.”
- Sell your house to earn money
There are several ways to earn some extra money, like listing your home on a short-term rental website like AirBnB, renting out your parking space through an app like Just Park, or taking in a lodger or international student.
You will receive a tax-free allowance of £7,500 per year under the government’s rent-a-room program for revenue derived from your primary residence as well, according to Richard Dana.
What assistance is provided by the government?
Although many lenders have endorsed the government’s mortgage code, which ensures they are explicit about the options available, governments rarely get directly engaged in providing support when consumers are faced with higher mortgage repayments.
In the UK, Support for Mortgage Interest is available to those receiving certain benefits. In the form of a loan that must be repaid with interest, the government contributes to a portion of your mortgage interest payments.
When the borrower sells the property or passes away, they typically pay off the loan.
Before registering, a number of prerequisites and regulations must be taken into account.
Although the regulations are complex and they frequently concentrate on those who are at risk of homelessness, the governments of Scotland, Wales, and Northern Ireland also operate some mortgage support programs.
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