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Mortgage rates Q&A: Part 1

March 2024

With mortgage rates on the rise, we wanted to share some advice from Helen Pierson, Director of Mortgage Advice Bureau New Homes Mortgages, on what the future might look like and what you can do now.

Whether you’re looking to move home, buy your first home or wondering whether to fix your current mortgage, read our Q&A with Helen for some handy tips.

Will my mortgage rate increase?

“Here’s a simple guide on whether your mortgage rate will change:

  • If you’re on a Fixed Rate mortgage, your payments will stay the same.
  • If you have applied for a Fixed Rate and the mortgage hasn’t started yet, as long as the offer doesn’t expire, you will get that fixed deal.
  • If you’re on a Standard Variable Rate (SVR), then your mortgage payments can fluctuate based on interest rate changes.
  • If you’re on a discounted or tracker mortgage, then these deals will change as the Bank of England or your lender’s SVR rate changes. For example, if these rates go up by 1% then your mortgage rate goes up by 1%.”
Street scenes at Brougham Fields

My mortgage deal is coming to end. What do I need to do?

“If your Fixed Rate is due to end in the next 3-6 months then it’s time to talk to an independent mortgage adviser who can look at the best options for you. You need to act before your mortgage automatically goes onto the Standard Variable Rate, as this will be higher than many deals.

“You can either do nothing and go onto the Standard Variable Rate with your current lender, select a new product with your current lender or find a new product with an alternative lender.”

How can I get the lowest mortgage rate?

“Put simply, the higher the deposit you have, the better the interest rate is.

“First Time Buyers should take advantage of Lifetime ISAs where you can save up to £4000 a year and the government will top this up with a 25% bonus on what you have saved. Gifted deposits are accepted by most lenders too.

“There’s also mortgages that allow your family and friends to help towards a purchase and buy a ‘share’ of your property to help you get onto the property ladder. They can help towards boosting your mortgage affordability and/or help with the actual monthly mortgage repayments too. They can even opt to not charge you interest and can gift the share later. These are highly specialised and more complicated lending tools so always seek advice from a specialist mortgage broker such as Mortgage Advice Bureau New Homes Mortgages.”

Should I fix my mortgage?

“Whether you fix depends on your individual circumstances. Mortgage rates are predicted to increase over the next two years before potentially reducing as inflation comes under control.

Some customers prefer to fix their mortgage, so they know what they’ll be paying over the fixed term, whereas others find a different mortgage product more suited to them. Some deals allow you to switch to a fixed mortgage without penalties. Speak to a mortgage adviser who will review your individual circumstances and help you to decide the best course of action.”

Can I still borrow what I need?

“There’s talk about mortgage providers not lending as much as usual because of rates increasing. This isn’t necessarily the case as it depends on your credit score, credit history, income and outgoings, which will be considered as part of the lender affordability calculations and stress testing that dictate how much you can borrow. A mortgage broker such as Mortgage Advice Bureau New Homes Mortgages should be able to provide you with a good indication of what you can expect to be able to borrow.”

Is it best to spread my mortgage over the maximum number of years?

“The immediate advantage of a longer-term mortgage, such as over 40 years, is that your payments will be lower. However, the disadvantage of this is that over a longer-term you will pay more interest.

“I’m a big advocate of looking at longer-term deals for First Time Buyers, where appropriate, as they’re typically younger so there’s sufficient time for salaries and affordability to increase which means the term can to be reduced. This can be done in a couple of ways; when re-mortgaging you can reduce the number of years to bring down the amount of interest you repay, or you can overpay your monthly payments every month, which can have a dramatic effect on the amount of interest you repay. By making an overpayment this immediately comes off the capital, and as interest is calculated daily, more of your normal monthly payment will go towards paying more of the capital than before. It’s a snowball effect and can really help towards the end goal.”

What should I do if I’m worried about paying my mortgage?

“Don’t bury your head in the sand. Speak to your mortgage lender without delay as they should be able to help you devise a payment plan. Paying something is better than paying nothing at all.”

Read our Mortgage Rates Q&A: Part 2 to find out about buying a new home, whether now is the right time to buy and if house prices will drop.

We hope you found our Q&A useful, for more information please visit Mortgage Advice Bureau.

Customer in their Story home