The current financial landscape, with the Bank of England (BoE) raising its base interest rate to 5.25% as of September 2023 – a peak not seen in 15 years – has left numerous homeowners grappling with their mortgage repayments. If you’re nearing the end of a fixed-rate deal, you might be transitioning from a comfortable sub-2% interest rate to one that’s potentially more than double.
However, the good news is that there are both governmental measures in place and proactive steps you can take to help navigate these challenging times.
Understanding the Mortgage Charter of June 2023
To support UK mortgage holders, the government introduced the Mortgage Charter, which offers:
- Support from Lenders: You can approach your lender for advice and assistance. Importantly, these discussions won’t negatively impact your credit score.
- Early Remortgaging: You have the option to secure a new fixed-rate deal six months before your current one concludes, giving you flexibility up until your remortgage date.
- Alternative Mortgage Options: Eligible individuals can switch to an interest-only mortgage or prolong their mortgage term. Both these choices don’t necessitate a fresh affordability review and won’t affect your credit score.
- No Affordability Check Remortgaging: Some can remortgage without undergoing an affordability assessment. This feature might simplify the remortgage process when your term concludes.
- Protection Against Immediate Repossession: Should you miss a payment, your home won’t be subjected to repossession for at least 12 months, offering a safety net during tough periods.
For those grappling with these new financial challenges, consider the following actionable strategies:
- Reassess Your Monthly Expenditure
A meticulous review of your monthly expenses could unveil potential savings. By identifying and trimming any excess, you can allocate additional funds towards your mortgage and ease the financial strain.
- Leverage Available Insurance Plans
In circumstances where illness or injury affects your ability to manage household expenses, check if you have relevant insurances:
Mortgage Payment Protection: Not mandatory, but if in place, this insurance can cover your payments during periods of accident, illness, or unemployment.
Income Protection Insurance: This offers a fixed income if an accident or ailment prevents you from working, lasting until you can resume work or retire.
- Utilise the Mortgage Charter’s Interest-Only Option
While most mortgages are structured for combined capital and interest repayments, the Mortgage Charter permits a switch to interest-only payments for up to six months. This change can ease monthly expenses temporarily, giving you a breather to realign your finances. Note: regular payment structures resume after this six-month period.
- Consider Over Extending Your Mortgage Term
Increasing the duration of your mortgage can reduce your monthly capital repayment amount. It’s crucial to remember that while this approach offers short-term relief in monthly payments, in the long run, you might end up paying significantly more in interest. For instance, extending a £200,000 mortgage at 5% interest from 25 to 30 years might reduce monthly payments by £95.54, but over time, this could translate to an extra £35,500 in interest.
In conclusion, while the current mortgage environment is undoubtedly demanding, by being informed and proactive, homeowners can better navigate these turbulent waters.
Get in touch
If you’re struggling to meet your monthly mortgage payments, you should talk to us sooner rather than later. We’re here to help and can explain your options and give you the expert advice you need.
Approved by The Openwork Partnership on 13/11/23