Are Homeowners And Those Renting Set To See A Spike In Their Monthly Payments?

Speaking at a conference held by Wall Street Journal, CS Venkatakrishnan (also known as Venket) - boss of Barclays Bank - has stated households across the UK are soon set to see another tightening of the purse-strings.

Homeowners and renters alike, will on average see 30% of their income swallowed up by mortgage/rental repayments, up 10% on 2022’s figures.

This isn’t just a direct impact of further base rate increases over recent weeks, but instead, owing to the fact most people have been ‘protected’ against rate rises over the last 18 months, due to still being tied into their existing fixed rate mortgages.

Are you one of these people?… you aren’t alone. 85% of borrowers in the UK currently have a fixed rate mortgage, and 1.3 million households will sooner feel the impact of mortgage rate rises when their deals end in 2023.

According to Venkat, the average household will see their monthly bills increase by roughly £266 - £416 per month. A colossal amount during a period of time many are already finding difficult.

In a bid to assist, we’ve asked members of our team what the future holds, and what you can do to offset the impact of any potential rate rises:

Market outlook -
Senior Mortgage Advisor, Bruce Martin, has been reflecting on recent market activity and conversations hasdat an HSBC conference he visited just last week (May 2023):

“Looking at the current state of the market, and that inflation is in fact behind the targets set, it’s widely expected by various lenders across the market that the BoE (Bank of England) will increase base rate further next month, to 4.75%. Many had suspected it may have peaked at 4.25% and possibly looking at rates falling towards the end of the year, however based on the information to hand and the conversations I’m having, things are likely to get worse - and then stagnate - before getting better”

“From the discussions I’ve been holding, many expect the base rate, when it finally stops increasing, to remain level for a period of between 12-18 months, before beginning to slower fall back. Anyone thinking of looking at a 2 yr fixed mortgage in the hope there’ll be cheaper rates in 2 years, really needs to rethink their strategy. As it stands, 2 yr fixed rates are higher than 5 year fixed rate mortgage deals at present, so why risk paying more over the initial 2 years, only to end up with the same, if not potentially higher rate? - Seriously consider the 5 year fixed if your situation allows for it”.


Some what are your options, and how can you offset any increases?

• Savings
  Are you sitting on savings? Getting excited about the increase in the savings interest rates over recent times?… have you compared the interest rate of your savings vs the future rate of your mortgage?
  It’s likely the new interest rate on your mortgage will be greater than your savings, therefore financially, it would make more sense to clear the savings off your mortgage and in turn, lowers your monthly mortgage payments.
  

• Start the remortgage process early
  Mortgage offers are valid for 6 months, therefore getting ahead of the game can really help. If you secure a mortgage rate now, but your deal doesn’t expire for 5 months, even if rates increase, you’re fully protected and the original rate you applied for is safe and locked in! This could literally save you hundreds, if not thousands in interest, over a 5 year fixed deal.
  

• Extend your mortgage term
  Always considered a last resort. Extending your term is never advisable due to the fact the longer you have your mortgage, the more interest you pay overall. However, if you really have no other option, extending the term of your mortgage could be the easiest way to control your monthly outgoings. Paying a mortgage off over 27 years as oppose to your remaining 23 yrs, would see your mortgage spread over a longer time and therefore lower the monthly payments, offsetting against any increases.
  

• Downsizing
  Not mortgage advice, but if you’re sitting in a 5 bed detached house, and the kids have left for university or flown the nest, have you considered downsizing to a 3 bed house? - You could potentially end up mortgage free in the process.

Summarising thoughts?
There are lots of moving factors within the housing markets right now, and a lot you aren’t expected to know. The best thing you can do is talk things through with someone who knows. We aren’t talking about your friend ‘Dave’ down the pub, but experts who live this daily, who know changes in the market as they happen, and who can make you think about the future.

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