Archive: MoneySavingExpert's Money Tips Email

Martin: Mortgage crisis worsens
Typical fixes now cost more than 6.5%. Will rates keep rising? How can you find the cheapest deals? And what to do if you just can't afford it

Martin: "The average 2 year fixed rate hit 6.6% today, worse than after the mini-budget, worse than at any time since 2008. Someone coming off a typical fixed rate shifting to even the cheapest fix will see repayments jump by a sobering £200/mth per £100,000 of mortgage.

"Yet nobody should think this pain is an accidental by-product of the Bank of England's 'inflation fighting' rate rises. It's deliberate. The economic aim is to squeeze consumers & businesses to take money out of the economy.

"However, only roughly 1/3 of people have mortgages (1/3 own outright and 1/3 rent, see rent help below), and even among mortgage-holders, many on longer fixes are as yet unaffected. That means rate rises are a blunted policy, with only those on variable rates or coming off fixes feeling the full impact, so to make the policy 'work', they'll need to be squeezed hard.

"And there's little immediate relief in sight. The markets think there are more rises to come, with the rough consensus being that the Bank of England base rate will rise to 5.5% to 5.75%, and stay there till 2024, but some analysts' worst-case scenarios could rise as high as 7% (& all these predictions can change rapidly).

"How UK base rate impacts mortgage rates. Tracker and variable mortgages tend to move roughly with the UK base rate. Yet the rate that new fixed deals are set at moves more with the markets' view of future UK rates. In the graph you can see they jumped when expectations of future borrowing costs rose rapidly (after the mini-budget last year, and following the recent worse-than-expected inflation stats).

"Will rates return to 'normal'? Some homeowners coming off sub-2% rates tell me they're considering waiting till 'rates return to normal' to fix. Though historically, today's rates aren't abnormal. This may feel perverse for anyone under 35, but the uber-low rates we've had since 2008 are the anomaly - they were far lower than we'd ever seen before in the 300-year UK history of rates.

"So there is no guarantee we'll ever return to those lows again. That's not me saying it won't happen, just that there are no rules that it must.

"And that's my scene setter for the rather unpleasant situation for mortgage-holders. Now the team and I will go through the need-to-knows, split into three..."

- Finding the cheapest new deals
- Support if you're struggling
- Still on a cheap fix? Start prepping for it to end

Our free 62-page PDF Remortgage guide has FULL info on what a remortgage is and how it works, but here's a quick summary... 

1. Gather details of your current mortgage. Collect the following information, as it'll help when searching for a new deal:

- What's the rate? Plus monthly payments & outstanding debt.
- What type is it? Fix, tracker or variable rate? See fixes vs variables.
- When's the intro deal over? For example, when does your fix end?
- When must it all be repaid? In 10, 20 or 25 years?
- Will you be penalised to switch deals? Does your fix or tracker have an early repayment charge? When does the charge end?
- What's the loan-to-value (LTV)? This is the proportion of the home's current value you borrow - for example, a £280,000 mortgage on a home worth £350,000 is 80% LTV. See LTV help.

2. Check your existing lender's 'product transfers'. For the past year or so, many providers have been offering competitive rates to existing customers on 'product transfers' - new deal, same lender - which may even beat those for new borrowers.

These can involve less paperwork, fewer fees and be easier to get (as your existing lender may forgo affordability checks if you're not borrowing more). See product transfer options in our comparison tool.

3. Always then speedily compare to see if it's cheaper elsewhere. While rates are far higher than they used to be, finding a new deal is still likely to be significantly better for most than staying on your lender's standard variable rate, now typically 8%. Our mortgage comparison tool shows what's available.

4. Check what you'll be paying. We've lots of powerful tools as part of our Ultimate Mortgage Calculator, including...

- Basic mortgage calculator
- Compare two mortgages
- Compare fixed-rate mortgages 

5. Should you fix, and if so, for how long? As a general rule, the more you value budgeting certainty - knowing exactly what you'll pay and that it can't rise - the more you should consider fixing, and fixing longer.

In normal times, you pay more to fix longer. Yet for months now we've had what's called an 'inverted yield curve', meaning you can fix for 5 or 10 years for less than 2 years - as the markets think rates will drop again over the longer term. Now even some 30 year fixes are undercutting some 2 year deals (see our how 10yr+ fixes work analysis for more).

Fixing when rates have gone up may seem like a bad idea, so some are thinking of moving to a variable rate for the short term, hoping to bag a cheaper fix later. However, there's no certainty they will be cheaper or happen quickly so that's a risk too (Martin will be discussing options with specialists on his ITV show tonight). It's a very tough call right now, so it's worth chatting to a mortgage broker for bespoke guidance.

6. Boost your chances of acceptance. It's not just rising rates, acceptance is getting tougher too...

• Affordability check. Lenders carry out strict checks to see if you can afford mortgage repayments on top of your other expenses. Living expenses are going up, meaning acceptance can be harder.
  
  Lenders also 'stress test' how you'd cope if interest rates went up further, meaning you'll need extra leeway in your finances. So it's best to consider being more frugal in the run-up to a mortgage application. See 17 ways to boost mortgage chances.
  
  
• Credit check. A poor credit history can torpedo a remortgage application. So check your credit file (for free) to ensure there are no errors, then minimise other credit applications, and pay down debts if you can. See 38 tips to boost your creditworthiness.

However, even if you've done everything right with your credit report and minimised outgoings, know that lenders' acceptance criteria differ from one to the next, meaning not everywhere will accept you. So...

7. Most should use a mortgage broker. On top of guidance for those who find sorting a mortgage tough, they have details of most lenders' acceptance criteria (not usually publicly available). Plus there are sometimes top deals, and even some product transfers, which are only accessible through brokers. See our full find a good broker help.

Martin: "I met the Chancellor (and separately the Shadow Chancellor) a couple of weeks ago to discuss the mortgage crisis. As little will be done to reduce the deliberate income squeeze, my focus was on better help to protect people from arrears and repossessions.

"The idea was for easy access to help to get over the hump of big cost increases, in a way that would allow borrowers to reverse it, if & when things improve, and not hit their credit files. It seems he listened as two days later he & the Financial Conduct Authority met with the banks and agreed a new mortgage charter.

"Info on that and other help is in our new step-by-step Struggling with your mortgage guide, but, again, in brief, these are some things to look at..."

• Reassess your finances. Do a money makeover to cut spending, then a proper budget to see if you can reallocate it.
  
  
• Check your benefits entitlement. If you've household income under around £40,000 (especially if you've kids or high rent), check our 10-minute Benefits Calc to see if there's any help available (it won't be for many, but it's worth a check).
  
  
• Claim on any mortgage payment protection insurance or similar. This pays out if you're unable to work through accident or illness, or redundancy. If you're working but still struggling, it won't help.
  
  
• Can you get government support? Some on benefits are eligible for support for mortgage interest, which'll pay some of your mortgage interest directly to your lender, but it's a loan.
  
  
• Mortgage charter - short-term lower payments support. It will likely be available from August from most lenders, without an affordability test, at the click of a button (though if you're unsure/confused, speak to the lender and discuss options first).
  
  There are two options, both lasting for up to six months, for those who are up-to-date with payments but worried they'll struggle to make future payments...
  
  - Extend your mortgage term. Eg, if you've 15 years left, changing it temporarily to 25 years.
  - Moving to interest-only. So you stop repaying the borrowing itself and just cover your interest.
  
  Doing this won't have a negative impact on your credit file. And you have the right to switch back to normal payments within six months, though you'll have to make up the missed cost later (and a little more due to interest).
  
  If you still need help after six months, your lender may offer you several options, though these will often involve affordability checks and credit file impact. Far more info is in mortgage charter support.
  
  
• Speak to your lender - it should provide tailored help. If you're having serious problems, or are already in arrears, speak to your lender to sort a payment plan ASAP. Under 'forbearance' rules, lenders are normally able to offer tailored support to make your mortgage more manageable, including:
  
  - Temporary payment concessions (including to zero)
  - Temporary switch to interest-only
  - Permanent extension of your mortgage term
  
  While these can affect your credit file, so does missing a payment, so this is a better route. See more mortgage arrears help.

If you're sitting pretty on a cheap fix, great. Yet double-check you're sure when it ends, as unless it's a VERY long fix, and the world moves again, it's likely you'll have bill shock when it does. Use our compare two mortgages calc to get an idea of how much more it'll cost (on say a 6% fix) so you're ready to budget. A few quick tips...

• Diarise SIX MONTHS TO THE DAY before your fix ends. Some mortgage lenders let you secure a product transfer up to six months in advance, and as part of the mortgage charter, they've all now been asked to do this.
  
  So a decent technique is to lock in their best rate today, to start in six months. You won't usually pay any upfront fees to do it. See it as insurance against rates rising. If things get cheaper, you can usually ditch the locked-in rate penalty-free if a better rate comes along in the meantime.
  
  Our own MSE Helen S did it: "Mortgage was due to end in June 2023. Booked the best rate of 4.74% in Feb in case rates went up. But they went down, so called my lender in May to cancel, and booked its new best 4.04% rate, saving £100s a year."
  
  Though there are risks to locking in early, such as if you pay an upfront fee to do so. Full pros and cons in lock in early help.
  
  

  Even if you don't do this, always ensure you know the date, so you can move on the day your fix ends, to minimise any time on the standard variable rate you'll automatically be moved to. 

• Save owt you can today, to reduce your future mortgage debt. Assuming you're debt-free elsewhere, reducing a costly mortgage is one of the best risk-free uses of money. Your mortgage isn't costly yet, but as it will be, the concept applies.
  
  As most on cheap fixes can earn more saving than their mortgage costs, for now it's best to put cash in top savings instead of overpaying, ready to use to reduce your mortgage when the fix ends (timing fixed savings to end at the right time is useful). Play with our mortgage overpayment calc to see the impact.
  
  Yet do always keep an emergency cash fund - Martin suggests three to six months' worth of outgoings, accessible in savings. Only use money above that (unless you've a specific offset mortgage) towards the mortgage. Full help in Should I overpay my mortgage?
  
  
• Saving now may also bag you a better deal. Mortgage rates tend to improve as you move down to 90%, 80%, 75% and 60% loan-to-value, so if you can use any spare cash to get you below one of those thresholds, it may be beneficial.
  
  
• Start managing your credit score and affordability early. With six months to go, if acceptance for a cheap new deal may be a struggle, then as discussed above, go extra frugal to help affordability, and be careful about any excess credit applications (and definitely no missed or late payments), to help your credit score.