How interest rates are affecting mortgage holders

The huge increase in interest rates driven by former chancellor Kwasi Kwarteng’s mini budget in Autumn 2022 had a dramatic effect on the lending market, as cheap mortgage rates all but disappeared in the blink of an eye, affecting not only those looking to buy their first home or to take the next step on the ladder, but causing significant uncertainty over the affordability of existing mortgages.

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Many people with Standard Variable Rates or tracker mortgages will see their payments increase in line with the base rate, whilst those with fixed deals will be protected until their deal comes to an end. As explained by Money Saving Expert, Martin Lewis, for every 1% that a mortgage rate increases, it will cost average home-owners an extra £50 a month

In practice, this means that many homeowners will be looking for ways to make extra money or tightening their belts to reduce their discretionary spending in order to afford the increased costs of their mortgage and to keep their home. It means that some homeowners may have to sell their homes at reduced prices in order to downsize and reduce their mortgage bills, but of course, in order to do this, they will need to find a buyer who can afford the mortgage required and this can take time.

Selling In This Market

Despite the rising interest rates creating uncertainty, houses are still selling but almost invariably only on the back of a successful building survey Birmingham, for example. This includes properties with a low flood risk and those that are not affected by the raised Radon levels in parts of the city. Buyers are acting with greater caution, noting that they may struggle to make costly property repairs and alterations when also paying high interest rates for their mortgage.

For those wanting to sell their home, preparation is key. Making sure that all DIY jobs are complete and that the property is finished to a good standard with clean, fresh paintwork will make it most attractive to house hunters. Choosing a licenced conveyancer such as Sam Conveyancing will help you to progress quickly once you do find a buyer.

Staying Put

If you decide to stay put, there are measures that you can take to minimise your expenditure. If you are on a fixed rate with several years left, you should save as much as you can in order to pay off a chunk of your mortgage when the deal comes to an end. Reducing your loan to value ratio will make you eligible for better deals when your current deal ends.

If you are on a tracker mortgage or standard variable rate, you should check whether you are allowed to swap to a fixed deal with your existing lender without incurring additional fees. A mortgage advisor may be able to help you to identify the lowest cost way of switching your mortgage product.

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If you are locked into your current deal and are concerned about your finances, you may find it helpful to discuss your concerns with an independent third party, such as the Government’s Money Helper team who can discuss saving, budgeting and debt consolidation with you in order to develop the most appropriate solution for your individual needs.