My mortgage is ending. What should I do?
More than one million households will see their fixed-rate mortgages expire this year, with most facing higher monthly payments.
Where Are Mortgage Rates Headed?
About 1.6 million households in the UK have variable rate or tracker mortgages, representing about 20% of all residential mortgage-holders.
Their monthly repayment rises whenever the Bank of England raises its benchmark interest rate.
Since December 2021, the average homeowner on an average tracker deal now pays almost £400 more per month than they did in December 2021.
Fixed-rate mortgages differ from other types of mortgages. The monthly payment remains the same throughout the length of the loan, usually two or five years. About 78% of mortgage holders have fixed-rate mortgages.
When these deals expire, borrowers automatically move onto their lender's standard variable rate (SVR), which tends to be much more expensive than the rate they were originally offered.
Research suggests that 1.8 million fixed-rate mortgages will end in 2023.
Most borrowers choose to take out a new mortgage at the end of their introductory period, typically with the same lender or one of its rivals. Most use a broker to find a deal.
But while fixed-rate deals are now available at up to 4%, they have become much more expensive than they were a couple of years ago, when the best rates were 1%.
Average rates soared after the September mini-budget, but have dropped back since.
Even though home prices are expected to fall, many homeowners will face the prospect of paying hundreds of pounds more on their monthly mortgage payments.
What Do I Do After My Deal Is Up?
Gather your paperwork to determine when your current deal ends and what interest rate you are currently paying.
Get organised. Lenders usually let you secure an offer within six months of the end of your current deal, but you should leave enough time to complete the process. Completing a mortgage offer can take four weeks or more, so if you leave it too late, you could end up paying the more expensive SVR for a period between deals.
It is important to review your budget before you begin the mortgage process. Your income and circumstances may have changed since your last mortgage. The more complex your situation, the narrower the choice of deals and the longer it will take to process a loan application.
Consider the fees associated with a deal. Some plans have setup or application fees; some charge an exit penalty (called an early repayment charge) if you sell your home before the end of the contract.
You may be able to negotiate with a lender if it makes an offer on your behalf but before your new deal starts.
A customer can switch to a different provider offering a more competitive rate during this period, but the customer would need to apply for service with the new provider.
Should I Get A Variable Rate Mortgage As A Stop-Gap?
The Bank of England's benchmark interest rate - and, in turn, mortgage rates is expected to fall later in 2023.
While waiting for fixed-rate deals to become available, you may be tempted to stay on your lender's SVR.
But one broker warns that an SVR is "not a cheap place to sit and wonder." A tracker might be more suitable for savers who want to keep up with Bank rate changes but aren't in a rush to access their money.
Brokers differ in their opinions on whether it's worth delaying a fixed-rate mortgage, but most agree that rates could fall further.
Committing to a fixed rate for a set period of time can give you certainty.
If payment is not made, what will happen?
Some borrowers are already struggling to make their mortgage payments. Although arrears rates remain low, the CEO of HSBC warned that "headwinds are ahead of us, not behind."
If you miss payments on your mortgage, you may find it difficult to get a new deal, potentially leaving you on an expensive rate.
Credit card and utility bills can affect your credit record, which lenders use when considering mortgage applications.
Before you submit paperwork to a broker, check your credit report for accuracy. Brokers recommend that you be upfront about any payment problems you may have had in the past.
You could consider extending the length of your home loan. For example, if you are repaying a 17-year loan over 17 years, it can be restructured over 20 years instead.
While reducing monthly repayments may be attractive, this option will mean you pay more in interest over the lifetime of your mortgage.
People in a position to make an excess income should consider overpaying their mortgage, as this will reduce the total interest bill. Most lenders allow you to do so up to a set level.