Around the world the economic situation is precarious with inflation increasing. To try and quell down increasing prices many central banks have raised interest rates. One of the biggest impacts of this is for borrowers, especially where rising interest rates are affecting mortgage borrowers.
For this reason, many citizens are keen on obtaining expert advice on how to keep your repayments low.
To provide advice for Digital Journal readers, we reached out to Claire Flynn, who is a mortgage expert at money.co.uk.
Flynn begins by putting the current situation in context and the challenges faced by many citizens: “Mortgage borrowers are likely to suffer from increasing interest rates. For those on a fixed-rate mortgage, changes in interest rates will not apply until the end of your fixed period.”
For others, the impact could be greater: “However, for those on a variable-rate mortgage, such as a tracker or discounted deal, the impact is likely to be much faster, resulting in an increase in mortgage repayments.”
“Tracker mortgages are aligned with the Bank of England’s movements, whilst discounted mortgages are determined by your lender and based on their standard variable rate (SVR). The SVR is not explicitly linked to the Bank of England’s base rate but is likely to be influenced by it.
In terms of the impact, Flynn explains: ““When a fixed mortgage deal ends, you’re normally reverted to the lender’s SVR. However, SVR rates are usually higher than previous fixed rates and so your monthly mortgage repayments will increase.”
So, how can I keep my mortgage repayments down?
Flynn outlines some advice for people to consider: “Those whose fixed-rate mortgage is coming to an end soon may want to consider changing their deal early to take advantage of interest rates before they increase. However, remortgaging before your current deal ends could mean you’ll need to pay an early repayment charge (ERC). You should compare the cost of the ERC to how much you think you could save by remortgaging, to ensure that switching early is worthwhile.”
There are other factors to consider as well: “Although most mortgage deals in the UK are valid for six months so if your current deal is set to expire within the next few months, you could apply to remortgage early. This allows you to secure a rate and switch when your deal comes to an end, avoiding an ERC.”
However, it is important to read carefully and to make the correct decision. Here Flynn advises: “The critical eligibility factors when you remortgage are your credit rating, your income and affordability, your loan-to-value (LTV) and your overall financial position. If you were eligible for a mortgage before, you should be able to find a remortgage deal now. However, if your financial circumstances have changed significantly you could find that the deals available to you are worse or you may struggle to remortgage at all.”
Summing up, Flynn’s final recommendations are: “There are a number of steps you can take to get the best remortgage deal possible for you. For example, maintain a good credit rating and try to reduce your loan-to-value ratio (LTV). It’s also worth considering speaking to a mortgage broker, who can look at the whole available market to find the right deal for your circumstances”.
