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Mortgage renewals

What to do when your mortgage is up for renewal, but you can’t afford the rate rise

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Written by  Ella Jukwey
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Reviewed by  Jonathan Leggett
10 min read
Updated: 01 Feb 2024

Is your mortgage payment set to soar? Well, you’re not alone. Thousands of Brits will see their outgoings rise as they come off their fixed-rate. Ella Jukwey explains your options when you’re faced with higher mortgage payments.

Why have mortgage payments gone up?

If you’re coming off your fixed-rate mortgage, you’ll almost certainly be aware that your repayments are set to be higher. One of the main factors behind the increase is interest rates.

The Bank of England (BOE) raises interest rates to combat inflation. In August 2023, BOE hiked interest rates for the 14th time in the row to 5.25% and it remains at this level at the time of writing (February 2024).

To put the extent to which rates have risen into perspective, the bank rate was just 0.1% in December 2021.

As interest rates have steadily gone up and inflation remains substantially above the BOE’s target of 2%, this could make your mortgage more expensive when you come to remortgage.

What do rate rises mean as your mortgage term comes to an end?

One of the most popular types of mortgage is a fixed-rate mortgage. As the name suggests, with a fixed-rate mortgage your interest rate will remain the same throughout the term. Fixed-rate mortgages are usually between two and five years and can even be as long as ten years. When your fixed rate period ends, your lender will move you to their standard variable rate. This means your lender has set your rate, which tends to be slightly higher than BOE’s base rate. If you secured a fixed rate when interest rates were lower, you could now be faced with significantly higher mortgage payments which might be more than you think you can afford.

Why you should speak to your lender when your mortgage is up for renewal

If you’re concerned you can’t afford your new mortgage payments, the first thing you should do is speak to your lender. Don’t be scared to get in touch and let them know your circumstances. They understand the mortgage market and can offer you practical advice and solutions, such as:

Payment holiday: This is when you take a break from paying your mortgage for a while. It’s important to remember that this is a short-term solution. Freezing your payments can give you time to build up your finances. However, once the holiday ends you’ll have to pay the mortgage payments you’ve missed.

Reduce payments: Your lender could also reduce your payments to alleviate the pressure on you. Remember this won’t be permanent and will probably last for a few months.

More time to pay back your mortgage: Your lender might suggest extending your loan term, which means you’ll make smaller payments but end up paying more overall. However, paying less per month could make your mortgage more manageable for you.

Lower monthly interest payments: You could reduce your interest rates if you have equity in your house.

Switch to an interest-only mortgage: This is when you only pay off the interest on what you borrow every month and not the capital. Switching to an interest-only deal can make mortgage payments significantly cheaper. However, unless you switch back to a repayment mortgage at a later date, you’ll have to find a large lump sum at the end of your term to pay off your mortgage.

Should you remortgage when your term is about to end?

If you’re not satisfied with the options your lender has given you, you might want to consider switching mortgage providers. Switching your mortgage lender is also known as remortgaging and this could save you money.

Remortgaging can help you land a competitive rate. If you want to move to a new mortgage deal, then start looking a few months before your current term is about to end. By not waiting to the last minute, you’ll avoid delays that will leave you on your lender’s standard variable rate.

If the value of your house has risen, it could also be savvy to remortgage as the loan-to-value on your home has reduced and you can use your higher equity to negotiate better rates.

Remortgaging does come with some downsides that you should be aware of, though. You could face fees from your previous lender and your new lender could make you pay administration charges. You’ll also need a solicitor when you remortgage who will charge a fee.

How else can you save money when your mortgage goes up?

Apart from moving onto new mortgage deals, you can also use this as an opportunity to take a long, hard look at your household finances. Here are some ways you could cut back on spending:

Shop around for cheap deals: If you feel your household bills are too high then you have options. For example, if you feel your broadband is costing you too much, you can speak to your supplier and see if you can bring your costs down. You could also shop around for cheaper bills by using a price comparison website like MoneySuperMarket.

Check your Council Tax: You could be entitled to a Council Tax Reduction if you’re getting certain benefits. You might qualify for discounted Council Tax if you live by yourself, live with children under 18, your household income is low and other circumstances.

Have a budget: Creating a budget can help you have a clear view of your finances. With online banking, your new budget could be atyour fingertips, as many challenger banks have built-in budgeting tools you can use to track your spending. Knowing exactly where your money is going can let you know if you’re overspending and where you could make savings.