Q: It’s coming up to the time for me to renew my mortgage and all I’m hearing about is how the Bank of England is putting up interest rates again! I know this is likely to impact my mortgage repayments, and I’m worried. Is there anything I can do to deal with what seems like an inevitable increase?
A: So, the current Bank of England interest rate stands at 1.25% (correct at July 2022) However, experts have said that this could go up to around 2% as part of a bid to tackle rising inflation. This of course means that borrowing will become more expensive, and a significant number of people are facing increased mortgage costs.
In any case this would be a cause for concern for many, but against the backdrop of soaring living costs, I can understand why you are feeling particularly worried.
Unfortunately, there is not much that we can do to impact interest rates, or the likelihood of our mortgage going up. However, as always, there are some important steps that we can take to make sure that we are prepared for the changes when they come:
1. Find out what rates you’re facing
You need to know exactly how much your mortgage is likely to increase by, and what this will mean. Worrying about it or putting it off isn’t going to help the situation. So get in touch with your mortgage provider or mortgage adviser and understand what the figures are.
2. Consider a fixed rate mortgage
This could be especially helpful if you are currently on a standard variable mortgage rate. With a fixed rate mortgage, you can lock in an interest rate for 2,3 or 5 years, meaning that means that even if rates rise, your payments will stay the same until the fixed term is over. The length of time you choose for your fixed rates is entirely up to you, but it might be worth thinking about the best option given current market instability and how long we can expect this to last.
3. Update your household budget
It’s highly likely that your mortgage payments are going to change. So once you know exactly how much this change will be, it might be an idea to go back to the drawing board with your budget and look at where your new mortgage rate will leave you, and what that could mean for your overall finances. That way you will be prepared for, and aware of any changes you need to make.
4. Work on your credit score
Just a few weeks ago we were talking about the gender credit gap, and reminding you of how you can top up your credit rating. Here, we have the perfect example of why this is important. The better your credit, the better rate you will get when it comes to remortgaging. So make sure you don’t have any major debt outstanding, and if you do, set a plan to pay it down. Keep your credit utilisation ratio to 20-30% of all available credit, get on the electoral roll and keep an eye on your credit report to make sure your repayment history is accurate and up to date. Oh and minimise buy now pay later, as there is evidence that this will start showing up on your credit reports now too.
5. If you’re still worried it’s probably time to get some help
If you’ve have done the numbers, tweaked the budget and are still finding that you’re going to struggle with your repayments then it’s time to get some help. Contact your lender and speak to them about your situation. They might be able to look at your individual situation and offer some additional options that could make it easier to manage. You can also contact debt advisory services or the Citizens Advice Bureau for help and information.
As worrying as rising interest rates is, the reality is we have to face the situation and accept that things are not likely to magically change or improve overnight. Take action, understand the situation and be aware of your options so that you can make a decision that works best for you. Oh, and don’t be afraid to ask for help!