How will the cost-of-living crisis affect my mortgage repayments?
- Credit: ARCHANT/SIMPLY C PHOTOGRAPHY/CHERRY BEESLEY
Budgets are being squeezed as everything from petrol to electricity and the food shop has gone up in price.
And mortgage rates could be the next thing to go up.
On Thursday Bank of England bosses are meeting to set interest rates – with the rate expected to go to its highest level in more than a decade.
Despite this, the mortgage market does not seem to be wobbling.
There were around 70,700 mortgage approvals made to home-buyers in March, a total which the Bank of England said was “little changed” and above the pre-pandemic average.
Approvals for remortgaging, which only capture home loans taken out with a different lender, rose slightly to 48,800 in March.
This total remained below the pre-pandemic average, but was still the highest figure since 52,100 re-mortgage loans in February 2020.
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As part of this newspaper's Your Money Matter's campaign, we asked Joanne Leek, a mortgage expert from Suffolk Building Society, to explain what all of this means for your mortgage.
How has the cost-of-living crisis affected mortgage repayments?
The rate of inflation – how quickly prices are rising – hit a 30-year high of 7% in March.
One of the ways Bank of England bosses can control inflation is by altering the base rate of interest.
And Mrs Leek explained the Bank of England base rate is one of the external factors that bank bosses consider when they decide what interest rate they can offer.
Therefore any increase in the rate could lead to people paying more per month.
At each of its past three meetings, the bank's Monetary Policy Committee raised the base rate — which has a knock-on effect on mortgage rates.
How much could mortgage repayments go up?
"If you are on a fixed-rate mortgage, you're fine until the date your mortgage deal ends. If you're on a variable rate, then it is a case of waiting to see what action your lender takes," Mrs Leek said.
"Lenders may or may not react after the base rate change, and it might not be an all or nothing situation – some may increase rates incrementally rather than all at once.
"And they should contact affected borrowers in advance of their monthly mortgage payment increasing."
While it is not yet known how much the Bank of England Monetary Policy Committee will raise interest rates, it is expected to be 0.25%. This would take the base rate to 1%.
This, Mrs Leek estimated, could mean an increase of around £20 per month for somebody currently paying just over £770-per-month on their mortgage.
Is there any way to avoid my repayments going up?
One thing people can do to save money is to remortgage onto a deal with a lower interest rate.
Mrs Leek said: "People who are looking at reviewing their mortgage contract may look to change providers or deals.
"In which case, they should speak to an independent mortgage advisor or mortgage broker – they will then be able to tell them the best possible deals for their circumstances."
To do this you sometimes have to pay an "early repayment charge", but it can sometimes be worth it in the long run.
"You might have to pay a percentage of your mortgage balance to get out of the contract early, but if you have found a far more attractive deal, it might be worth your while doing it," she said.
"Speak to an independent mortgage advisor – they know the market."
What can I do if I'm struggling to make my repayments?
"The most important thing to do is speak to your lender before have the problem arises," Mrs Leek said.
"People often bury their head in the sand and want to address the problem later on. But the earlier your lender knows about it, the more they can help you.
"We genuinely want to help our mortgage borrowers who might be struggling to pay their mortgage or even think they might struggle to pay their mortgage."
Among the options lenders have, Mrs Leek said, are things as simple as changing the date the mortgage is paid on to remortgaging over a longer period of time which will reduce monthly costs, but increase the total amount paid.
Another option, she explained, was to swap to an interest-only mortgage for a period of time.
She said: "Any lender will make sure they explained the implications of any of these, but will actively seek to help the borrower in the first instance."