How can I afford to move in this market with the mortgage rate increase?

Following the recent mini budget, the news on the sudden mortgage rate increase will have been scary for any buyer. It was hoped that mortgage rates would stay around 4% this year (for two to five year fixed mortgages), but during the chaos in October, we have seen average fixed rates rising to 6% or more. However, it’s worth noting that lower rates are available for variable and tracker rates.

This mortgage rate increase could add thousands to the cost of a mortgage over the next few years, but the good news is there are some ways you can help to reduce these costs, even during these challenging times. It’s also important to remember that if you are a first time buyer, you’ll be getting on the ladder and hopefully staying on it for 60+ years. During this time you are likely to see mortgage rates rise and fall as well as prices, but what’s most important is to find the right home for you at different life stages and find ways to deal with the ups and downs of home ownership.

Sarah Thompson, Managing Director at our sister company, Mortgage Scout, says: “Fixed rates may be high, but there are still good value variable/tracker rates available. We always advise speaking to a broker rather than going directly to a lender – as a broker we can look at deals from a variety of lenders so, if things change rapidly during your purchase, we are able to make sure we are finding the most suitable deal for you.

Five ways to tackle the mortgage rate increase

A higher deposit

It might not be easy to do, but if you do have the option of raising a deposit of 15% or more, this can help give you access to more cost effective mortgages which attract lower rates. Best rates tend to be when you have a 60% Loan to Value and that would be very tough as a first time buyer or second stepper, but the higher deposit you can raise, typically the better rates you can achieve and the cheaper your mortgage will be. Speak to a mortgage broker like Mortgage Scout to find out what you would need to save to achieve a better rate.

Extend the mortgage term  

Typically a mortgage term is 25 years, but this is the same term that was set back in the 1970s when more people began to own their home rather than rent. If you buy when you are 30, that means the mortgage would be paid off when you are 55.

Many people throughout the 90s though used to take out a 25 year term mortgage and if they moved a few times they re-started their 25 year term, so in actual fact were really paying off a mortgage for 30 or more years.

Bearing in mind that we are living longer – and not retiring until 66 or later – taking out a 30 or 35 year mortgage is definitely worth chatting through with a broker to see how much it could save in the short term. Some lenders are now even offering 50 year mortgages. It doesn’t mean it will take you that long to pay off your mortgage, it just means it will help lower the monthly costs now when you most need it although you will pay more back in interest in the longer term.

Reducing your property budget

Another way of still being able to get on the ladder or moving onto something new is to see if you can buy the property you want in a cheaper area or buy a smaller property in the same area. Once you are on the ladder, buying and selling in the future should be a little easier financially, so changing your aspirations can help make sure you can still have a home of your own now, even if it isn’t your dream property just yet.

Look for properties that are struggling to sell – or where sales have fallen through

This isn’t always easy, but sometimes if a property has been on the market for a while or if a sale has unexpectedly fallen through, you can make a lower offer, especially if you are well organised and ready to move. Do make sure you are ready to purchase quickly as it’s likely the seller will only offer a deal if they want to move fast.

Share the mortgage rate increase by buying with someone else

It may not feel ideal, but with the cost of living crisis hitting everyone, buying with someone else and sharing bills from utilities to council tax can help those wanting to get on the ladder now, while keeping your costs down and having the added bonus of boosting your deposit if you have two people’s savings.

It’s worth making sure if you buy with a friend that you have an agreement when you buy as to what happens if either of you need to sell up. That way if anything does go wrong there is a clear process set out you have both agreed to.  

What’s essential while things are uncertain just now is to speak to a mortgage broker. They can check deals for you daily and that could make the difference between you moving or having to wait until the mortgage market becomes more certain. Our sister company Mortgage Scout can help.

You may have to pay an early repayment charge to your existing lender if you remortgage.

Your home may be repossessed if you do not keep up repayments on your mortgage. 

There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1%, but a typical fee is 0.3% of the amount borrowed.