You only have to look at the cost of petrol, energy bills, food prices – or the news – to realise that the cost of living has gone up significantly.
But what does the so-called cost of living crisis mean for mortgages?
Mortgage adviser and director of Mortgage Confidence, Jo Jingree, says: “It’s no secret that the base rate has risen five times since December 2021. This has a direct impact on the housing market and mortgages.
“This year alone, according to current data, the average UK house price rose by 13% to £294,845 – which is the largest yearly surge since 2004.
“But while this might sound all doom – when it comes to your mortgage, whether you’re self-employed, a first time buyer or already on the ladder – there are a handful of things you can do to stay on top of rising costs and make the most of deals already available.”
From swapping to a fixed deal or remortgaging, we picked Jo’s brain to find out what the cost of living means for mortgages and what can be done.
1. Swap from a standard variable rate to a fix
A standard variable rate is the default mortgage interest rate your current lender will charge after your mortgage deal period comes to an end.
Usually, this is higher than some of the fixed rate deals available. Plus, as the name suggests, it’s variable which can make it harder to budget. “So, with the fluctuating base rates, it could make sense to remortgage onto a fixed deal before your current deal ends,” Jo says. “Or swap over to a fix rather than letting your standard variable deal continue.
“Just recently, I rescued clients from a standard variable rate and saved them £156 per month,” Jo says. “They fixed at 2.91% for 5 years while their current standard variable rate is 4.49%.”
2. Do your prep
If you’re thinking about getting on the property ladder – perhaps waiting for a rental agreement to end – make sure you have all your eggs in the basket. In the mortgage world this includes:
- Knowing your outstanding and ongoing payments (this includes the likes of gym memberships, groceries, car payments and credit card loans).
- Being able to show your deposit and where it came from.
- Know your annual salary – and gather your payslips to prove this. If you are self-employed a mortgage adviser may want to see your company accounts, your tax calculation form and tax year overviews. See more here.
Jo says: “That way, when it does come to a point when you’re ready to get in touch a mortgage adviser, you have everything they’ll ask for up front and can make the most of the current rates before any potential rises.”
3. Re-check your affordability
Over the past six months petrol prices have reached a record high, the price of food has rocketed and according to the Trades Union Congress, energy prices are due to rise at least 14 times faster than wages.
“This all adds up to more money coming out of your account each month,” Jo says. “Lenders have cottoned onto this, and some are adjusting their lending criteria.”
So checking – or rechecking – your affordability will help you set your expectations on what you can and can’t afford.
“Although online affordability calculators are great at giving you a broad overview of how much you could afford, I’m able to take a much closer look at all the factors,” Jo explains. “By taking a deep dive one couple’s finances just a few months ago I was able to help them increase the amount they could borrow by £55,000, whilst still keeping well within their affordability.”
4. Don’t leave refixing until the last minute
If you are worried about any rising rates, fixing your mortgage is one way to get ahead of potential hikes.
Jo says: “In some cases, a handful of lenders are actually letting you lock in rates now 9 months ahead of your mortgage deal coming to an end. My advice? Get in touch with an adviser sooner rather than later to have access to deals available now and make the most of what is currently available.”
5. Consider using a mortgage adviser
“Mortgage advisers are specialists in their craft,” Jo says. “Not only do they have insider knowledge about the mortgage world, but they also have the most up to date information at their fingertips. This means, even in the midst of a cost of living crisis, once you’ve got a good mortgage adviser by your side you can rest assured they will find the most suitable deal for you and your circumstances.”