A recent report by the Halifax reveals that 53% of people living in the south-east were concerned about mortgage rates, while 41% in London were worried – which is more in line with the national average.
The survey found that 57% of those with a variable rate mortgage were worried about a rate hike, compared with only 43% of those with a fixed rate mortgage.
James Skidmore, Head of Mortgages at AAG, said “There will be a significant number of homeowners who have no experience of an interest rate increase, simply because the base rate has remained at 0.5% for over 5 years.”
It is widely anticipated, that the base rate will increase from 0.5% to 0.75% at some point early next year, which means that some homeowners are becoming concerned.
Whilst mortgage lenders will take into account potential rate increases as part of their affordability checks during the mortgage application process, how you manage your disposable income will be a key factor in how well you can adjust to any changes in rates.
So, if you are concerned, what can you do to prepare for the increase?
“In order to reduce the pain of increased mortgage payments it can be worth looking into fixed rate mortgages sooner rather than later” James suggests.
Opting for a fixed rate mortgage allows you to be certain of what your monthly payments will be over that period. Fixing for 5 years ensures that, regardless of increased interest rates, you continue to pay the same amount every month.
“If interest rates rise dramatically during that fixed rate period, then you would have some time to put some plans in place.” James continues, “Saving any spare income during your fixed rate period would enable you to build a fund to overpay the mortgage at the end of the term.”
The key is, as always, being prepared. With rate increases due early next year, it’s an ideal time to review your mortgage and consider a longer term fixed rate as part of a general financial review.
Your home or other property may be repossessed if you do not keep up repayments on your mortgage.