As interest rates rise and fall, they can have an impact on mortgage and rent payments. Here’s what to do if you’re a homeowner or are trying to get onto the housing ladder for the first time.
Help with mortgage interest rates
Why interest rates matter
When you borrow money for anything, the total you pay back depends on the interest rate. Here’s what you need to know.
Here’s what you need to know
Interest rates affect your mortgage
Rising interest rates in the last few years have had a dramatic effect on homeowners in the UK.
The interest rate on your mortgage plays a part in how much you’ll pay each month and over the lifetime of your loan.
When interest rates are low, you could secure a good deal with a low rate and enjoy lower monthly mortgage payments. This can leave you with extra money for other expenses or help you put away some savings.
On the other hand, if interest rates rise, it could mean higher monthly payments, which put a strain on your budget.
It’s a good idea to keep an eye on interest rate trends. You can consider refinancing options if rates drop significantly to save you money on your mortgage.
Are mortgage interest rates coming down?
Any rise or fall in the base rate can impact the interest rate mortgage lenders offer. But they will also consider other economic factors, so you should always shop around for the best mortgage deal for you.
Always be prepared for some movement in the market – as we’ve seen, interest rates can go either way.
Speak to your lender or a mortgage broker to explore the options available to you depending on your individual situation.
What is the Bank of England base rate now?
The base rate is currently 4.5%.
Find out what to do if your fixed or discounted rate mortgage is ending
If your fixed or discounted rate mortgage is ending
If you’re coming to the end of a fixed or discounted rate deal and are worried about changing mortgage interest rates, follow these steps to make sure you consider all your options.
Follow these steps to work out what you need to do
Talk to your own lender first
When your fixed rate ends, if you don’t act, your rate will automatically go back to the standard variable rate (SVR).
Most lenders have a customer retention department and some offer preferential rates to existing customers. Contact your mortgage provider and they will discuss the options available.
You can start talking to your lender around six months before your deal finishes to understand what offers are available for new rates.
Ask your current lender if you can ‘reserve’ a new rate. Some let you hold a rate for up to 3 months. If the rate drops, you can cancel and take advantage of a better deal.
Use our mortgage repayment calculator to work out how a changing mortgage interest rate will affect you
Compare new mortgage rates with other lenders
Once you know what your current lender has to offer, check you have the best deal available to you compared to the whole mortgage market.
If you know what you’re looking for, you can research yourself and switch online. Find out more in Understanding mortgages and interest rates.
Most people talk to an independent mortgage broker. You’ll be charged a fee for their advice. If your circumstances have changed since you arranged your last mortgage, they will take this into account.
When comparing rates, confirm any arrangement fees and early redemption penalties (if you want flexibility to switch products before your agreement ends).
Mortgage brokers will often quote rates with all fees included, not just the headline rate.
Find a mortgage broker with our guide to getting mortgage advice
Keep your future plans in mind
Talk to your mortgage broker about your financial needs and goals and what’s important to you. This can help you decide which type of mortgage is best for you.
Things you’ll need to consider include:
- How much peace of mind over payments you want. Fixing means you always know how much your repayments will be, but you may end up paying more if rates fall during the fixed term.
- Whether you plan to move in the next few years. You may want a shorter term fixed or discounted rate, or a mortgage rate with no early redemption penalties.
- If you want the ability to overpay. This can give you flexibility to pay down your mortgage more quickly if things improve in the future.
Find out more about using a mortgage broker
Review your budget
If you’re having to spend more on your mortgage payments, you need to have a look at where you can cut costs and maximise income by making sure you have claimed everything you’re entitled to.
If you'll still struggle to meet payments, talk to your lender about your options. For example, you might be able to extend your mortgage term to keep payments the same.
This may mean that it takes longer to pay off your mortgage and you pay more interest over the term. So consider your budget today and your future needs before making a decision.
Use our Budget planner to see where you can cut costs and increase income
Find out what to do to if you’re stuck on an uncompetitive rate
If you’re stuck on an uncompetitive rate
If you think you’re paying too much for your mortgage, follow these steps to explore your options.
Follow these steps to work out what you need to do
Pay to switch your mortgage deal early
If you’re currently in a mortgage deal but believe there are better options out there, you could consider switching early. Some products may have Early Repayment Charges (ERC) for doing this.
An ERC can apply if you remortgage or pay off the balance of your mortgage before your deal ends.
Paying this upfront charge can be expensive but could save you money in the long run by letting you change to a more competitive mortgage deal.
It can be beneficial if you have a larger mortgage balance.
ERC is usually worked out as 1% to 5% of your outstanding mortgage balance, but some deals have a flat rate.
Speak with your mortgage provider for details of what you’ll pay to switch.
Explore overpaying your mortgage
If you have the cash to pay an early repayment charge, another option is to use this to reduce your overall mortgage balance to ease some of the pressure from rising interest rates.
If you can afford to make extra payments, overpaying your mortgage means you pay less interest in the future and pay off your mortgage sooner.
Overpaying also means you’ll have a smaller mortgage if there are higher interest rates in the future.
Always check you deal as restrictions may apply. You could be charged for paying off your mortgage early, or making an overpayment which goes over your agreed limit.
Speak to your provider to find out more, or read our guide, Should you pay off your mortgage early?
What to do to keep up with mortgage payments
If you’re struggling to keep up with repayments, it’s important to get advice as soon as possible.
Follow these steps to work out what you need to do
Talk to your lender about alternative arrangements
Lenders must treat you fairly and consider any request you make to change the way you pay your mortgage.
So, if the new payments are looking unmanageable, ask about ways to make them more affordable.
Solutions could include:
- extending the term of your mortgage
- taking a payment holiday
- accepting lower payments for a while.
When you discuss solutions with your lender, any conversations won’t appear on your credit file.
However, some solutions do, so always ask what the impact of any outcomes you agree will be on your credit score.
Bear in mind, any impact is likely to be less than if you go into arrears and miss payments without talking to your lender first.
If you’re struggling to switch to a new lender, have an interest-only mortgage you can’t repay or want to discuss Equity Release Schemes, just get in touch. We can discuss your situation and signpost you to free, independent, expert guidance to explore your options.
Speak to us by calling 0800 138 1677 or start a webchat online
If you have already missed payments
Keeping up with your mortgage is a priority that you need to look at before other bills and payments.
Your lender will consider you to be in arrears if you have missed two or more payments.
If this happens, within 15 working days they must:
- tell you the total sum of your arrears
- list all the payments which you’ve missed or partly paid
- tell you the exact amount outstanding under your mortgage
- tell you the amount of any charges incurred because of missing any payments (and indicate any charges that may occur if the arrears aren't paid back).
Your lender must not seek repossession unless all other reasonable attempts to resolve the situation have failed, and they must give you reasonable notice before taking that action.
Don’t delay action. If you have missed two or more mortgage payments now is the time to get debt advice.
Get free and confidential debt advice
Find out if you can get government support
If you’re struggling to meet your mortgage repayments, the government could be able to help.
Depending on your situation, there are government benefits and support schemes available for homeowners. These can help give you the space to try and fix money issues and bring down your monthly costs.
The support available will vary depending on where you live in the UK, but current schemes include:
Support for Mortgage Interest
Help to Stay - Wales
Both schemes offer different types of assistance, like shared equity loans or repayable loans to help with mortgage interest.
Find out more about Help with mortgage payments
What to do if someone is seeking possession of your home
Help is available from the moment you receive written notice from a creditor seeking the possession of your home.
If you're in England or Wales, the Housing Loss Prevention Advice Service can help you if you’re at risk of being evicted from your property because your mortgage is in arrears.
A housing expert funded by the government will work with you to identify what has triggered the possession claim and recommend solutions. They may be able to give you free legal advice on:
- mortgage arrears
- welfare benefits payments
- debt.
If you’re unable to resolve matters and you’re asked to attend a court hearing, a housing adviser can also provide free legal advice and representation at the court. Please arrive at least 30 minutes before your hearing and speak to the court usher and they will direct you to the adviser.
You can find your nearest Housing Loss Prevention Advice Service provider by typing in your postcode and ticking the box ‘Housing Loss Prevention Advice Service’ at find legal advice at GOV.UKOpens in a new window
Using equity in your home to cope with rising costs
If you’re worried about rising costs, you might consider freeing up cash, such as using equity in your home or remortgaging. While it’s worth considering, it also comes with significant long-term implications.
Follow these steps to work out what you need to do
Understand the pros and cons of remortgaging
Remortgaging can be used to raise cash and consolidate debts.
But there is a risk to adding unsecured debts to your mortgage. For example, you’ll be putting your home at risk if you’re not able to keep up with repayments.
Plus, you’ll end up paying far more overall if the loan is over a longer term, even when mortgage interest rates are low.
Remortgaging options may also be affected if your income has fallen or your home drops in value, so it might be difficult to switch to another lender or borrow more.
It’s important to explore your other options and if you’re thinking of remortgaging to consolidate debts, get free debt advice before thinking seriously about adding more debt to your mortgage.
Find out more about whether remortgaging is for you in our guide Remortgaging to get the best deal
Using equity release to boost your income
Equity release plans offer a way for people over 55 to access the money tied up in their home. This involves taking a cash lump sum, several smaller amounts or a combination of the two.
This might seem like a good option if you need money and don’t want to move house, but it’s worth being aware of the long-term implications.
Equity release probably won't be the best option if you’ve been financially affected by rises in the cost of living. These schemes can be very expensive in the long term and can restrict your options later.
Make sure you’ve considered all other options before you look at equity release.
Alternatives could include downsizing, getting a lodger or going back to work.
See our page on how these schemes work and what to consider
Using equity in your home to pay off debts
Using your home to consolidate short-term, unsecured debts such as loans, credit cards and overdrafts is not a step to take lightly.
There are several risks to you and other family members. Some of these risks include:
- Interest, where applicable, can build over many years. This means the equity in your home can decrease very quickly over time. So, it’s a good idea to only take what you need and consider a scheme that has a ‘no negative equity’ guarantee.
- It will become more difficult to move house, so consider downsizing as an option first.
- Any inheritance you may want to leave could be severely reduced.
- You should consider the impact on any eligible means-tested benefits you might qualify for.
If you’re struggling with debts or worried that you might soon be, speak to your providers (banks and other lenders).
They must offer measures to help you. For example, reducing your charges or interest, or agreeing a realistic payment plan.
If this doesn’t work, a debt advice expert could help you find a solution that allows you to keep the equity in your home while paying off your debts.
If you want to talk through your options with a qualified regulated adviser, you can get free, impartial equity release and money advice on the StepChange websiteOpens in a new window or call 0808 1686 719Opens in a new window
Find out more about what to do if you’re looking to buy your first home
If you are looking to buy your first home
Buying your first home can be an exciting time, but also a difficult process with a lot of jargon thrown at you. There’s some help available to you as a first-time buyer - including Stamp Duty relief if you’re buying in England and Northern Ireland.
Follow these steps to work out what you need to do
Keep saving as much as you can
It’s a good idea to make sure your savings for a deposit are working as hard as they can for you.
If you’re aged under 40, the Lifetime ISA is designed by government to help you save for the costs of buying your first home.
You can save up to £4,000 each tax year and the ISA pays an annual bonus of up to 25%, plus you earn tax-free interest on whatever you save. This makes them very attractive compared with regular cash ISAs, which pay interest but no bonus.
If you’re able to save more than £4,000 a year, make sure you compare general savings accounts, as the good news is that interest rates are rising. Switching to another provider can make a big difference to your savings balance.
And if you are putting other money aside each month for bills, holidays or a rainy day, look at regular easy access savings accounts – they pay some of the highest rates available.
Find out more about Lifetime Individual Savings Accounts (LISAs)
Know how much you can afford to borrow
Use our Mortgage Affordability calculator.
It will help you estimate how much you can afford to borrow to buy a home by looking at your income and your outgoings.
Mortgage lenders will also look at these figures to work out how much they’ll lend to you. It should only take about five minutes to complete.
Find out how much you can afford to borrow with our Mortgage Affordability calculator.
Understand the pros and cons of different mortgages
There are four main types of mortgages, so get to know how they work and whether they will fit your needs.
Fixed rate: The amount you pay is fixed for a set length of time, usually between two and ten years. Payments maybe higher than variable rate mortgages.
Standard Variable Rate (SVR): The rate you pay will be set by the mortgage lender. Unlike a tracker mortgage, it is not linked to rises and falls in the bank of England base rate. There is no fixed term and usually no penalties if you want to switch or overpay.
You’re likely to go onto an SVR after finishing an introductory fixed, tracker or discounted deal if you don’t take any action.
Discounted: Your lender will offer you a discount off the Standard Variable Rate for a fixed term, usually two to three years.
Tracker: The rate you pay is linked or ‘tracked’ to another rate, usually the Bank of England base rate. The longer the term, the higher the margin will be. Sometimes, you can get a lifetime tracker for the whole of the mortgage term.
Understand more about the pros and cons of different types of mortgages
Get independent mortgage advice
Once you understand what types of mortgage products are available, talk to a mortgage broker about your financial needs and goals and what’s important to you.
They can search the mortgage market to get you a deal that’s right for you and your financial circumstances.
Mortgage advisers might be able to find a deal you can’t find on your own and could improve your chances of being accepted for a mortgage. This is particularly important if you don’t have a large deposit, haven’t been with your employer for very long or if you’re self-employed.
They can also help you with the paperwork, which can be overwhelming if you haven’t bought a home before.
While there is usually an upfront cost, seeing a mortgage adviser at the start of your mortgage journey will save you a lot of time and effort in the long run.
Find a mortgage broker and read our guide to getting mortgage advice
Work out the true cost of buying a home
A deposit is only one of the costs you’ll need to plan for if you’re buying a home. Major upfront costs include:
- Stamp Duty
- valuation fee
- surveyors fee
- legal fees
- estate agent’s fee
- electronic transfer fee
- removal costs.
You’ll also have to budget for protecting and maintaining your home. Costs include:
- maintenance and repairs (the average repair bill for new homeowners is 1% of the property value a year)
- insurance
- Council Tax
- running costs (utilities, ask your seller how much they spend)
- leasehold costs and service charges.
Use our guide to make sure you’ve thought of everything
Have you missed a payment?
If so, now is the time to get debt advice
-
It’s free and confidential
-
Gives you better ways of managing your debts and money
-
Ensures you’re claiming all the right benefits and entitlements