According to the FCA over 1.5 million mortgages will come to the end of their fixed rate deal in 2024. The Bank of England (BoE) have recently held rates at 5.25% and most analysts have predicted a fall interest rates this year, but for many who were on sub 3% rates on their current deal, could future rate reductions be too late?
Preparing For Mortgage Changes
As you reach a pivotal point in your financial journey, the end of your interest only or capital and interest mortgage term can bring a mix of emotions and concerns. With the current surge in interest rates, many of you may be apprehensive about the impending increase in mortgage payments.
This article aims to provide practical guidance and tips tailored to those aged 50 and above who are navigating the transition from a fixed rate deal to potentially much higher payments. Additionally, we'll explore alternative solutions like equity release for those seeking more financial flexibility.
Understanding Your Current Situation
Before delving into solutions, it's crucial to assess your current financial standing. Take stock of your income, expenses, and overall financial health. Review your mortgage agreement to understand the terms and conditions, especially regarding the end of the fixed or discounted rate period. Knowing exactly what you're dealing with lays the foundation for informed decision-making.
Stepchange recommend that you do this as early as possible to allow the biggest window to plan for the increased payments. Following that it’s important to check if you can afford any new payments, even if it’s an estimate at an early stage it’s better to be prepared to begin to adapt your budget accordingly.
Consulting with Your Lender or Broker
Don't hesitate to reach out to your mortgage lender or broker as soon as possible. Many lenders offer options to help ease the transition, such as extending the term of the mortgage or switching to a different type of mortgage with more favourable terms. Discussing your options with your lender can provide clarity and potentially alleviate some of your concerns.
Martin Lewis recommends that if you have less than six months on your remaining term that could be the time to speak with your lender or broker. There is a new mortgage charter, introduced by the Chancellor which sets out guidance for borrowers in this situation. This includes guidance for Lenders who should be offering you their best deals with little or no fees if you’re within 6 months of your fixed rate mortgage coming to an end.
Exploring Remortgaging Opportunities
Remortgaging could be a viable option to secure the best possible deal amongst higher interest rates. Although it’s likely to be much higher than your current deal, researching the current mortgage market to assess if there are better rates or terms available from other lenders could be beneficial. However, be mindful of potential fees associated with remortgaging and ensure that the new terms align with your financial goals and circumstances.
The team at Money Saving Expert emphasise the importance of locking in a deal early, in most cases this can be done 6 months before you’re due to switch deals. However this may come with additional fees such as a new valuation, along with other arrangement fees and it comes with the risk that better deals could be available if you had waited a little longer.
Budgeting and Financial Planning
With potentially higher mortgage payments on the horizon, now is an opportune time to revisit your budget and financial plan. Identify areas where you can cut back on expenses to accommodate the increased payments. Consider consulting a financial adviser who can offer personalised guidance and help you create a sustainable financial strategy for the future. Before doing this it’s important to know the exact amount owed on your mortgage, to ensure this can be covered by any new mortgage deal. This is particularly important in a market where house value growth has slowed over the last 12 months and you’re potentially looking to switch lenders.
Could Selling or Downsizing Be an Option?
Although it may not be the most desirable option, selling your property at the end of a fixed mortgage deal can offer several benefits, particularly when faced with significantly higher payments due to rising interest rates. Firstly, by selling the property, you can avoid the burden of increased mortgage payments, which may strain your finances.
Secondly, selling could help you to capitalise on the equity built up in the property over the years (unless you have an interest only mortgage), providing a substantial financial cushion to downsize to a more affordable home. Additionally, selling before mortgage payments become unmanageable can help you maintain control over your financial situation and prevent potential defaults or repossession.
What if You’re Approaching Retirement?
Being accepted onto a new residential deal could be tricky, but rest assured you’re not alone. There are a whole host of lending products to help support homeowners aged 50+. Replacing your mortgage with equity release – of which the most popular type is a lifetime mortgage is a sure way to reduce your monthly payments to zero if you want to.
In fact 24% of all Equity Release Supermarket customers this year released equity to replace their existing mortgage freeing them from the burden of increased monthly payments. We expect this to increase sharply this year as more customers roll off their existing mortgage plans.
A further 11% used equity release to replace other debts such as credit cards or loans which have generally become more expensive since the interest rate rises throughout 2023. However, it's essential to thoroughly research and understand the implications of equity release, including potential impact on inheritance, means tested benefits and future financial flexibility.
It's also possible to replace your existing repayment mortgage with a Retirement Interest Only mortgage (RIO) available from the age of 50. Replacing your capital mortgage with a RIO could potentially reduce your monthly payments significantly while protecting any equity you have built up in your home. However unlike a lifetime mortgage, a RIO is based on affordability, credit rating and you must keep up repayments or potentially risk repossession – like any standard residential mortgage.
Exploring Products and Researching your Options
A lot of these products come with competitive interest rates from 5.38% for a lifetime mortgage with Standard Life* and features could include free valuations and no application fees. We recommend that you use smartER™ to explore your options. smartER™ is the only tool available for over 50 homeowners to research live products and rates that are tailored to your personal needs. It will also tell you how much you could borrow using equity release or another later life lending product.
Seeking Independent Advice
When exploring your later life lending options it’s crucial that when you’re ready for financial advice that you consult an adviser who isn’t tied to one or a particular set of lenders who will recommend a certain set of products when there could be a better deal out there for you.
At Equity Release Supermarket all our advisers are impartial, independent and research products across the whole later life market. Our advisers are rated 5.0/5 on the review site feefo and we recently received a 10 year award for providing great service consistently for over a decade. Equity Release Supermarket also get access to exclusive products that other advisers don’t have access to such as the Canada Life smartER™ product range.
Mark Gregory – Founder and CEO comments:
The transition from a fixed rate mortgage, especially amid rising interest rates, can be challenging. However, with careful planning and informed decision-making, you can navigate this period with confidence. Whether you choose to explore remortgaging options, adjust your budget, or consider equity release, prioritise your long-term financial stability and seek professional advice when needed. Remember, your financial well-being is worth investing in, especially as you embark on this new chapter of your life.
*Rate correct as of February 2024.
