For most of us, the biggest monthly expense is housing. Whether rent or mortgage payments, any change in how much the roof over our heads costs has a major effect on the rest of our budget – all while a cost of living crisis sends the price of necessities skyward. And this summer, as the Bank of England forecast a £500-a-month hike in mortgage repayments, a tsunami of fear is heading for people trying to pay off their homes. The average two-year fixed mortgage rate in the UK has hit a 15-year high of 6.66%, according to figures from Moneyfacts. Mortgage rates now stand at a level not seen since the height of the global financial crisis in August 2008.
You might not be able to change the base rate, but you can arm yourself with knowledge – and these, say the experts, are the main things you should know.
The mortgage market can be confusing and tricky to navigate, even for seasoned homeowners. Knowing exactly how you could be impacted is key before you consider any other action. As MoneySavingExpert explains: People on fixed-rate mortgages will not pay more during the fixed period. Your payments will stay the same until your deal ends. This also applies if interest rates come down – your payments will not decrease to reflect that.
You might be on a standard variable rate (SVR) or discount mortgage, which are usually for people whose fixed rate or tracker mortgage has ended. These can rise at the lender’s discretion and usually do when the Bank of England base rate changes.
Payments will increase for those on tracker mortgages which, as the name suggests, track the base rate. A 0.5 percentage point increase in the base rate roughly means a £29 rise in the monthly payments for a £100,000 mortgage, for example.
The biggest lenders have agreed some support measures
At the end of last month, the chancellor met with lender bosses to agree a plan to help struggling borrowers. Some of these measures were already in place with some lenders, but this agreement makes a guarantee to all mortgage-holders – provided they are still up to date with their payments.
The scheme means borrowers can move to interest-only payments for six months or extend the mortgage term for six months, meaning monthly repayments will be lowered temporarily.
The main change is that, as well as now being available from all the main firms, it will officially not affect your credit score if you opt for this support from your lender.
These measures are designed to provide temporary respite until a mortgage-holder finds a way to afford their payments – you’ll still pay the full amount of the mortgage over time, and likely more if you go for an option which means you’re borrowing for longer and thus accruing more interest.
Don’t shy away from remortgaging
For those on fixed-term mortgages, you should start shopping around for a new mortgage when you’re six months or less away from the end of your deal.
The rates are going to be high, but you still have some control over mortgage terms, Which? told The Big Issue, so think carefully about how long you want to be locked in for (usually two, five or 10 years). Some people are opting for two-year mortgage terms in the hope that rates will come down by the time those deals end. You might decide to do this, but bear in mind that experts including the Resolution Foundation calculated that the base rate won’t return to 4.5% until 2027. It’s clear that these elevated interest rates will last for some time.
Lenders want to hear from you if you can’t pay
If you’re worried you might miss a mortgage payment, your first step should be to speak to your lender. Go to them having already thought about how much you can afford to pay each month and whether there is likely to be a change to your income in the short term – these are questions they’ll ask you. Being proactive and speaking to your lender as soon as you’re struggling will put you in the best position possible to stay on top of your repayments and avoid impacting your credit rating. It’s difficult and can be embarrassing, but staff are trained to work with people in tricky situations and hear from people facing difficulty every day.
Prioritising mortgage payments is prioritising your mental health
The inescapable pressure of money worries can have a major impact on mental wellbeing. People are designed to feel stress for a reason – to escape acute and one-off threats – but when the threat is something like unavoidable bills or unaffordable monthly mortgage payments, a person can start to “absorb” the stress for which they have no clear way out, and mental health problems develop. That’s according to the Mental Health Foundation, who recommend that people deal with their money worries head-on to protect their mental wellbeing.
“If you’re struggling with your mental health as a result of your finances, it is important to speak to people who can help with money worries,” the organisation told The Big Issue. “You don’t make your best decisions when your mental health is flaky, and treating these issues as separate can just push the problem further down the line.”
A knock-on effect for renters
Cost of living pressures on tenants haven’t eased up either. Caitlin Hurley, a 24-year-old admin worker from Newcastle, shared her experience with The Big Issue
“As a young worker and renter during the cost of living crisis, I’ve found things really difficult financially. After my previous tenancy ended, I was suddenly left with a week to find a new home, one that cost me £200 more a month than I’d paid before. Six months in, and at the end of an unsteady fixed-term contract, my landlord wants to hike my rent further.
“As someone on far below the average wage in my region, it’s something I’d struggle to afford. It has been a massive source of anxiety, stress and insecurity, and in my experience the government has been little to no help to me or people I see experiencing similar issues.
“But I really do know I’m not alone in a situation like this. My membership of ACORN, the Community Union, and my trade union have been fantastic resources during this time, as sources of solidarity, community, and collective strength that have been invaluable. I’ve known where to go for advice, how to help myself, and who to rely on when things get tough.
“The instability of renting is difficult, and the cost of living disproportionately affects those of us on lower incomes, but there are groups out there where we can empower ourselves and make a change.”
If you rent from a private landlord, find out what your rights are here
Urgent action is needed to prevent even more people being pushed into homelessness. A secure home is the first step in addressing the cruel cycle of poverty to ensure people can fulfil their potential. Join us to keep people in their homes.