MARTIN Lewis has warned that millions of homeowners face a “huge payment shock” in the Spring.
The warning comes as mortgage holders on cheap fixed deals will see their bills spike next Spring.
The average fixed mortgage deal has fallen below 6% but millions face higher bills next year
Mortgage rates have shot up since many people fixed their loan at record low rates.
It means when they come to they face paying higher levels of interest and larger monthly repayments.
Mortgage rates have been rising as the Bank of England has hiked interest rates this year to tackle inflation, and are expected to rise further.
They also shot up to a 14-year high after the disastrous mini-Budget in September, but have since fallen back.
The average two-year and five-year fixed deal has 5.84% and the average rate sits at 5.67%, according to MoneyFacts.
The fall comes after the Bank of England revised its forecasts when it hiked interest rates in November and said that rates would hit a maximum of 4.6% next year.
But the fall in rates will do little to help over two million households due to come off cheap fixed mortgage deals that were taken out when average rates were 2.34% this time last year.
For example, someone taking out a £250,000 mortgage over 25 years back in November 2021 would have expected to pay £1,100 a month.
But if someone took out the same two-year fix now they’d expect to pay £1,683 a month – up £583 on last year.
It comes after Martin Lewis met with Jeremy Hunt and the chief executive of major lenders to warn that thousands of households coming off cheap fixed deals will need more support next year because they face a “huge payment shock.”
Martin said: “The major concern for people’s mortgages – and the knock-on impact of mortgage increases on rents – is the situation in the spring, when we expect interest rates to be higher, energy prices to be rising, and other cost of living impacts.
“So the most important thing is that now the conversations have started about what flexibility and forbearance measures can be put in place to help those struggling.
“For those worried about making mortgage repayments, the sooner you communicate with your lender the better.”
Since the meeting, the financial regulator has issued guidance to lenders on how they should help hard-up mortgage holders.
The Financial Conduct Authority (FCA) says that lenders should offer hard-up households struggling with their mortgage repayments a range of options including:
- Payment holidays – which can give hard-up mortgage holders temporary breathing space.
- Extended mortgage terms – to help spread the debt over a longer time period reducing borrowers’ monthly payments.
- Temporarily switching to interest-only – helping reduce the monthly payments over a specific period of time.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “Most borrowers are able to keep up with their mortgage payments and should continue to do so.
“But if you’re struggling to pay your mortgage, or are worried you might, you don’t need to struggle alone.
“Your lender has a range of tools available to help, so you should contact them as soon as possible.”
It’s imperative that if you are struggling to keep up with your mortgage payments you should tell your lender and they will discuss how they can support you.
How to choose the best mortgage deal?
There are lots of factors to consider when searching for the best mortgage deals.
The amount you can borrow and interest rate are important factors but you should also consider the type of mortgage.
Do you want the certainty of a fixed-rate mortgage or the flexibility of a tracker that could get cheaper rates and doesn’t have exit fees?
There are mortgage calculators online that will let you compare the monthly cost of a mortgage based on the interest rate and any fees.
A lender or mortgage broker will be able to offer advice on the best type of mortgage deal to meet your needs.
Shop around for the best mortgage deals rather than opting for the first bank you see.
Remember a bank or building society will only offer its own options which limits your choice.
You can also use a comparison website to find deals across the market based on your level of deposit and whether you want a fixed or variable rate.
A comparison website will usually let you search for all types of home loans such as for first-time buyers or the best buy-to-let mortgage deals.
This will give you an indication of what is on offer but you will need to do the application yourself.
Some lenders may not be on comparison websites so it is worth searching directly online as well.
Alternatively, a mortgage broker can help search the market more widely and find the most suitable deals for you.
Is it better to get a mortgage from a bank or a broker?
A bank may offer the best mortgage deal for you but shop around before you commit.
This is because a bank adviser will only offer their own products.
Limiting yourself to one bank’s products could mean you end up paying more than you needed to or you may not even meet their criteria.
Alternatively, a broker can use their market knowledge to help decide which type of mortgage and lender is best for you.
This could be of benefit if you are self-employed or have a poor credit rating as they may have more experience dealing with these sorts of applications.
It saves time on doing multiple applications, as you just tell your broker your income and expenses and they will work out the best mortgage you can get.
They can usually help with your application and will fight your corner to get you approved.
A broker will be able to advise on a range of products from different lenders, but these may also be limited to a panel so you should check if they are tied or work across the whole market.
There may, however, be extra fees when using a broker.
A mortgage may have an application or product fee but a bank adviser won’t charge anything on top of that.
In contrast, a mortgage broker may have their own fees for their advice.
When should I start looking for a new mortgage deal?
Getting your mortgage prepared when buying your first home can make you more attractive to sellers as they can see you have finance in place and are serious about proceeding with a purchase.
It can take a couple of hours or a few days in more complicated cases to get a mortgage in principle.
This gives you an idea of how much you can borrow, and you can usually get a decision within hours or a few days in more complicated cases.
You can do a full application once you have had an offer on a property accepted.
It can take four to six weeks for a mortgage to be approved depending on how much information a lender needs.
A seller will usually wait, once they have accepted your offer, for you to get your mortgage sorted.
But having an idea of what you can borrow in advance will speed up your purchase and ensure you don’t miss out on your dream home.
More preparation is needed if you are remortgaging.
A lender will move you onto a more pricey SVR once your mortgage deal comes to an end.
That means you could have been on one of the best mortgage deals and suddenly your monthly repayments will increase.
You should start looking for a new mortgage at least three months before your deal ends.
It can take at least two months for a remortgage to complete so you need to allow time to find a new deal and make the application.
Mortgage offers typically last up to six months, so you could start early if you spot a good rate and time the start date so you avoid any exit fees and move smoothly onto the new rate once your deal expires.
