I can’t afford my mortgage, what are my options?

Mouthy Money Your Questions Answered panellist, London & Country’s David Hollingworth, answers a reader’s question on what they can do as their mortgage bills rise.  

Q: My mortgage is ending soon, but I’m worried I won’t be able to afford paying much more than I currently do. What are my options? 

A. Many homeowners are worried about rising interest rates at the moment, particularly those who are coming to the end of a currently low deal and unsure what to do next. Rates are higher so it’s hard to avoid any increase, but it will help to plan ahead. 

A good starting point is to check exactly when your current mortgage deal is coming to an end. It’s important to avoid moving on to your lender’s Standard Variable Rate (SVR), as these tend to be considerably higher than other rates available, whether fixed or variable. 

If your mortgage is up for renewal within the next six months, then it’s possible to review your options now. Most lenders’ offers will be valid for up to six months, which allows you to secure a deal now whilst still in your current deal.   

Fixed rates have been rising so that can help you grab a rate now but still gives you the option to review it again to check it is still the best rate for you nearer the time. 

Have a think about the type of deal you want to go for next. Variable or tracker rates are often the cheapest options, but these rates will go up and down as interest rates change. If you would prefer more certainty in your budget, then a fixed rate deal will offer you more peace of mind. 

The Bank of England base rate has risen rapidly from its historic low and the market anticipates that there could be more to come.  As a result fixed rates are much higher and variable rates could rise again if interest rates do climb. 

It may be possible to consider some additional changes to your mortgage that could help mitigate any increase in payments. Switching to an interest-only mortgage would cut the payments but if you go down this route, you aren’t reducing the mortgage balance so it needs careful thought about a repayment strategy over the longer term.  

Extending the term of a repayment mortgage will also reduce monthly payments. However, that also comes at a cost and the total interest over the life of the mortgage ratchets up substantially, so it makes sense to try and peg that back later or overpay as your circumstance changes. 

The Government has also recently announced a range of options put in place to support customers who are up to date with their mortgage payments but worried about managing the increased costs. The Mortgage Charter includes the option to extend the mortgage term, or to temporarily switch to interest-only for six months.

If you’re worried about managing your new monthly payments then it makes sense to talk to your lender sooner rather than later as they will be keen to help and talk you through your options. 

David Hollingworth is Associate Director of Communications for L&C Mortgages, the UK’s leading fee-free mortgage broker offering advice to borrowers from across the mortgage market. David is regularly called on to provide commentary on the mortgage market by the national and trade press as well as broadcast media. This ranges from giving opinion on new product developments and the pros and cons for consumers, through to providing a wider perspective on topical market issues, trends and initiatives. 

Photo Credits: Pexels