How To Check The Effect Of Interest Rates On My Mortgage
For many people, an increase in the cost of living is what’s most troublesome, and that’s particularly true for homeowners. With the consistent increase in interest rates over the last several years, many homeowners are concerned that their monthly mortgage payments will go up again and again, particularly if they don’t have fixed-rate mortgages or if their fixed-rate mortgage terms are coming to an end. You may be left asking yourself, “How much will my mortgage go up?” Fortunately, this guide can help you better understand what those effects might look like.
A Closer Look At Mortgage Interest Rates On UK Mortgage Products
Understanding how the mortgage interest rate might affect your monthly payments with a better understanding of mortgage interest rates themselves. Your mortgage interest rate is set by your lender, but it depends, at least in part, on the Bank of England’s base rate. For example, the Bank of England recently had a base rate of 3%. In situations where 3% is the base rate, mortgage interest rates tend to be a few percentage points higher – usually, they’ll fall between 4% and 6% when that’s the case, and sometimes, they’ll be much higher than that. As the Bank of England’s base rate increases, mortgage rates go up too. If you have a mortgage, as the base rate goes up, so will your payments. That accounts for the mortgage rate rise the UK have seen recently. Naturally, the amount of your pay increase depends entirely on exactly the kind of mortgage that you have as well as a few other different factors. In the case of a Standard Variable Rate mortgage, or an SVR mortgage, the lenders pass those costs on to their customers as the Bank of England’s base rate moves. Payment changes can occur as soon as the next payment cycle begins for those kinds of customers. Typically, lenders send out a notice with an explanation of the new rate and what each customer can expect to pay in response to that new rate.
Tracker rate mortgages work a bit differently. They move not only in response to the Bank of England’s base rate but a few more percentage points too. If the base rate goes up by .50%, the amount you pay usually goes up the same percentage. The interest rate on mortgages that are tracker rate mortgages tend to last about five years before they become SVR mortgages, but that’s not always the case. There are tracker rate mortgages that last the life of the loan.
Discounted interest rate mortgages tend to have rates that are just below SVR mortgages, but they only stay that way for a short amount of time. When SVR rates increase (and when the rate from the Bank of England increases), the discounted rates increase, too, so you can expect to pay more each month.
Fixed-rate mortgages are generally the only type of mortgage that doesn’t change when the Bank of England’s rate increases. Does inflation affect fixed-rate mortgages? Not usually. They tend to have a higher interest rate, to begin with, but they’ll stay at the same rate even as rate increases hit other kinds of mortgages, which means that if you have this kind of mortgage, your payment doesn’t change. These kinds of mortgages, though, don’t typically last forever. Instead, they usually only stay at a fixed rate for a certain term, and once that term expires, they become SVR mortgages.
Understanding Why Interest Rates Increase
Why are mortgage rates going up? The Bank of England sets a base rate to help control inflation. If the Bank of England begins to believe that inflation might become a problem shortly, they will increase those interest rates in an attempt to control it. Keep in mind, though, that the change in interest rates doesn’t just affect people who have mortgages. Instead, it affects individuals who have other kinds of loans too like credit card loans and auto loans. A shift in interest rates can also affect how much people earn from savings accounts. The interest rate increase rarely affects these other kinds of loans quite as quickly as it affects the mortgage market, though. Have mortgage rates gone up? Absolutely, but so have interest rates on everything else as well. When does the Bank of England review interest rates? Eight times each year, and when they do, you’ll quickly know whether they’re going up or down. If you’re wondering “Will my mortgage, go up when they review again,” the answer could certainly be yes.
Are Mortgage Rates Going Up?
If you have been watching interest rates on mortgages in the UK increase over the last few months and watching your mortgage payment, go up in response, you may be concerned that they will only continue to rise as time goes by. Wondering “What will my mortgage rate go up to?” You are not alone. People have been asking that question for some time. They have been asking for almost a year. Just recently, there was an article titled “Will Interest Rates Go Up in December 2022?” They did. It’s tough to know exactly how much interest on mortgage payments might go up and what might happen with interest rates, but it’s worth noting that the Bank of England has predicted that mortgage rates are going up at least a bit more before they feel as if things will settle down enough that they can begin to push those interest rates a bit lower again. How much will mortgage rates go up? It’s almost anyone’s guess at this point.
What If You Can’t Pay Your Mortgage After A Rate Increase?
Mortgage UK interest rates are going up, and as they increase and mortgage payments increase, too, it can be tough to sometimes make ends meet. If an increase in interest rates has pushed your payment too high, there are things you can do. The process begins when you contact your lender. Most mortgage lenders are more than willing to help if you find your payments unaffordable. Legally, they have to do everything they can to reach an agreement with you. The Financial Conduct Authority, or FCA, regulates the mortgage industry, and they have said that not only must mortgage lenders work with you to help you get on track with new payments but that they can’t take any foreclosure action against you until you’re behind at least two months on payments. The term for falling this far behind on your payments is arrears, and if you reach that point, your lender has to tell you the total amount that you owe, send you a list of the payments that you have missed or only been able to pay in part, tell you the total balance of your loan, and tell you about any charges you incurred because of those missed payments. Your lender also has to make every reasonable attempt to resolve the situation. If they decide repossession is the only way forward, they must give you reasonable notice before they’re allowed to take that action.
The bottom line here is that a lender must treat you fairly, and they have to consider any request you make to the way you make your payments. If you’re in a situation where you feel like you can’t make your payments for one reason or another, start by offering to pay back what you can afford when you talk to your lender. Payment is better than not making any payments at all, and it will help reduce your overall balance. You’ll also want to consider when you can begin making full payments again. You’ll also want to think about when you may be able to pay higher payments to help pay off what you owe from being in arrears. Most lenders will help you consider your options, and they may be able to make some changes like extending the mortgage term or something similar so you will quickly be able to return to making regular monthly payments. The key to this process, though, is to reach out to your lender immediately.
You may also have help from an unexpected source. Many people take out mortgage protection insurance when they take out their initial mortgage, and this can help you make your payments in some situations. This is sometimes called accident, sickness, or unemployment insurance, and it can help repay your mortgage if your income falls off at any point because you lose your job, you are involved in an accident, or you become ill. If you find yourself unable to pay your mortgage bill, it’s worth it to check with your lender and make sure you don’t have this type of insurance in place to help cover your bills.
If after you have spoken with your lender, you’re still having trouble making your payments, you may want to consider doing some budgeting on your own, too. There are probably some spaces in your monthly bills where you could cut costs and save some cash. Working with a financial advisor can sometimes help you identify these spaces where you might be able to cut back, you’re spending on those non-essential items. Maybe cancelling your gym membership and working out from home will be helpful. Perhaps cutting out the takeaway from your budget could help you make ends meet as interest rates continue to rise. You may also be able to cut your spending on your food or energy bills and get a better deal elsewhere.
If you’re still stuck, it may be worth it to chat with a free debt counselling service to get the help you need. There are trained money advisors at places like Shelter and Citizens Advice who can help you take a look at your budget and decide which solutions might be right for you so you can begin to make your mortgage payments once again. You may even be able to enrol in a government scheme to get help toward your interest payments or other kinds of support to help make your mortgage affordable once again.
In a worst-case scenario, you may decide to sell your house as a response to higher mortgage interest rates and payments you feel you can no longer make. If you feel you’re never really going to be able to make your mortgage payments again thanks to those higher interest rates, it may be worth it to simply sell your home, and rent a cheaper property. Talk to your lender to learn whether you can stay in your home as you try to sell it. Before you do so, though, you’ll want to have a place that you can afford to live in before you move out. If you do decide on this option, be sure to keep your lender updated as you work to sell your home. Keeping your lender in the loop can help you avoid any serious problems as you work to get out of your home.
No matter what you do, if you feel as if you can no longer afford your home because of rising interest rates, make sure you don’t take on additional loans to be able to afford your debts. They can be quite expensive over the long term, and you’ll just be subject to higher interest rates on those loans anyway. You should also avoid just handing back the keys to your lender. Remember that you’ll still be responsible for repaying the loan until your home is sold, and you’ll be responsible for the shortfall if your home sells for less than the mortgaged amount.
Rising interest rates frequently cause people to struggle to repay their mortgage loans, so don’t think for a moment that you’re on your own. Do what you can to make things work, and talk to your lender and financial advisor to get the help and resources you need.
How Much Will My Mortgage Payments Increase?
Exactly how much more will you pay from month to month on your mortgage after a rate increase? It depends a bit on the amount of your mortgage, the type of mortgage, and the amount of the interest rate increase. Imagine, for example, you have a standard variable interest rate mortgage of £100,000. When the interest rate is 2%, you might make a monthly payment of £424. If that interest rate jumps to 4%, though, your new monthly payment amount could be £528.
There are several online calculators to help you determine how mortgage interest rate increases could affect your monthly payment, and often you can simply reach out to your lender to learn more about those effects.
Can You Remortgage Your Home?
If you’re concerned about rising interest rates, you may wonder about remortgaging your home. That, too, is a possibility. This is especially true if you’re on an introductory deal like a two- or five-year fixed-rate loan. If that’s the case, your lender will usually contact you well before the mortgage expires, so you’ll know when you need to remortgage. If you choose not to remortgage, you’ll usually revert to a standard variable-rate loan, which will likely mean an increase in interest rates.
Whether or not you’re due to have your introductory offer close soon, it is still likely possible that you can remortgage your home. The entire process starts with a mortgage broker. It’s best to work through a broker in this situation because they can search the entire market and find a deal that may fit your circumstances. What’s more, though, is that they usually have access to deals that aren’t widely available on the open market.
If you do decide to move to a new lender, you’ll need to appoint a conveyancing solicitor to handle the transaction. They will handle much of the paperwork involved in the mortgage transfer.
You’ll want to have several documents ready well in advance of the remortgaging process because your broker (and eventually your lender) will want to see all of them. You’ll need three months of bank statements and payslips. You’ll also need to gather utility bills from the last several months as well as credit card statements. You need to provide details of the addresses where you have resided for the last three years, and an ID like your driving license. Additionally, you need your P60.
Once you have provided all of that documentation, the lender will arrange for a valuation on the property, and that helps to confirm that your home is still worth the amount you’re asking to borrow with the loan. Once that’s complete, you’ll finalise any mortgage paperwork with the lender, and if everything is in order, the lender will send a mortgage offer letter to both you and your solicitor. The solicitor asks for the mortgage funds from the new lender and then uses those funds to pay off your old lender. The new mortgage holder’s details are registered with the Land Registry, and your title deed is transferred to your new lender. At that point, all of your mortgage payments will be directed to the new lender.
The Bottom Line
Interest rate changes from the Bank of England do have an impact on your mortgage, and in some situations, it can be a fairly serious impact. If you’re seriously concerned about the impact rising interest rates may have on your mortgage, the best first step you can take is to talk to your current lender to learn just how much of an increase you might see in your monthly payment thanks to rising interest rates. If the amount of the increase seems like it might simply be too much for you, you may be able to chat with your lender to see what they can do about switching your mortgage terms a bit so you can better afford the costs of the rising interest rates. If that’s not possible, you could also think about a remortgage on your property so that you can find a payment amount you can afford. In a worst-case scenario, though, you may want to consider selling your home because the interest rates have simply made your payments far more unaffordable than you ever imagined.
Fortunately, high-interest rates for mortgages won’t last forever. Instead, they’ll eventually begin to go back down, and that may help to make those mortgage payments more affordable shortly. The Bank of England has predicted that they will likely begin to drop by 2024, and that may serve as great news for many people.