The Bank of England (BoE) has forecast three scenarios created by the impact of events in the Middle East and the closure of the Strait of Hormuz on energy prices. In the worst case inflation hits a peak of 6.2% and in best case it reaches 3.6%.
But in the most likely scenario the BoE said energy prices will fall more slowly and inflation will peak at 3.7%.
But with inflation pushing higher, we are more likely to see the BoE raise interest rates. According to analysis by Moneyfacts, in the most likely scenario average mortgage rates would hit 5.5% or 6% and this could drive up the average yearly repayment by somewhere between £1,050 and £1,950.
Moneyfacts’ number crunching has also forecast, if the worse-case scenario were played out, typical yearly repayments could soar by £3,380. But even in the best case, borrowers could see their mortgage bill rise by £150 to £1,050.
As such borrowers who are due to remortgage are being offered advice on how they can keep their mortgage costs as low as possible, in order to offset the inevitable increases.
-
Secure your deal as early as possible
Adam French, head of consumer finance at Moneyfacts, said most lenders allow you to secure a new deal up to six months before your current fixed rate expires, effectively giving you the option to ‘lock in’ to today’s rates as insurance.
“If rates rise, you’re protected and if they fall, you can often switch to a cheaper deal before the new one begins,” he said.
“It’s also worth speaking directly to your broker or lender about flexibility options, such as extending the mortgage term to reduce monthly repayments, although this will increase the total interest paid over the lifetime of the loan.
“In a volatile market, being proactive and keeping options open can make a meaningful difference to borrowing costs.”
-
Use a broker and find the right deal for you
It’s not just about timing, borrowers can find the best rate for them by using a broker to help them scour the market and potentially find the deal that suits their circumstances.
Nicholas Mendes, mortgage technical manager at John Charcol, said borrowers should look beyond the headline rate. “Product fees, valuation costs, cashback, affordability rules and whether a lender will allow a simple product transfer can all affect the real cost,” he said.
“In some cases, staying with the existing lender may be the quickest route. In others, remortgaging elsewhere could unlock a better deal.”
-
Consider overpaying
If you have some time left to run on your current deal, you could look whether you have the ability overpay.
Mendes said: “Even modest extra payments can help reduce the balance over time and soften the impact of higher rates later, but borrowers need to check their lender’s overpayment limits first, so they do not trigger early repayment charges.”
-
Extending the mortgage term
Mendes urged caution with this one, but explained, for those genuinely struggling with monthly payments, extending the mortgage term can reduce the immediate cost.
He added: “It should not be treated as a free fix because it usually means paying more interest over the life of the mortgage. It is a useful pressure valve, not a decision to make lightly.”
-
Prepare your finances so you are ‘mortgage-ready’
In the run up to your mortgage application, apply the principles of good money management. Don’t overspend and ensure you are on time with bills.
“Borrowers planning to remortgage should also be careful about taking on new credit before applying,” said Mendes. “Car finance, loans, or larger credit card balances can all affect affordability, and in a tighter market that can reduce what a lender is prepared to offer.”
-
Don’t wait till the last minute
Mendes said the key message was not to wait until the last minute to remortgage. “In a market this jumpy, time is one of the few thing’s borrowers can still control,” he said.
“The cheapest-looking rate is not always the best answer once fees, flexibility, cashback, and lender criteria are taken into account.”