About four million mortgage borrowers face an average £250 jump in their monthly repayments next year, the Bank of England has warned.
A typical customer with a fixed-rate mortgage due to expire by the end of 2023 could see their monthly payments rise from £750 to £1,000, as they are forced to remortgage onto a higher rate.
This is based on mortgage rates at the end of November, with a Bank of England rate of 3% - which is likely to rise to 3.5% or 3.75% tomorrow.
A sharp increase in mortgage payments means costs could surge by £3,000 a year for many households who are already seeing their finances stretched by soaring prices across the board.
Bank of England governor Andrew Bailey said: "Falling real incomes, increase in mortgage costs and higher unemployment will place significant pressure on household finances and weigh on their ability to service debt.”
Sam Richardson, deputy editor of Which? Money, added that higher mortgage repayments would leave many households facing a “financial cliff-edge”.
Rates on new fixed-rate mortgage deals have climbed this year, as the Bank put up interest rates to combat inflation, but they also shot up following former chancellor Kwasi Kwarteng’s disastrous mini-Budget in September. Hundreds of mortgage deals were pulled, and rates peaked as high as 6.65%. They have since fallen slightly.
If you’re struggling with mortgage costs, it is possible to get help. We highlight the support available.
Talk to your lender
The first port of call is to speak to your mortgage lender. They may be able to grant you a temporary payment holiday, which can ease the pressure. Although bear in mind that you will still need to pay this back at a later date, and you may accrue extra interest as a result of taking a mortgage holiday.
Other options include lengthening the term of your mortgage, which will lower your monthly payments, or switching your loan temporarily to interest-only repayments.
You might also be able to switch to a cheaper mortgage, especially if you’re on a standard variable rate, in which case it may be possible to reduce your payments by changing to a fixed-rate mortgage.
Banks and building societies are required by law to support struggling customers. According to Citizens Advice, your lender should understand if your household income has dropped because of events such as a job loss in the family (for example if you were made redundant), an illness or accident, or a death.
Many lenders have specialist support teams who can help. It’s a good idea to work out how much you can afford to pay towards your mortgage before you talk to your lender.
Check your insurance
If you’ve lost your job or are unable to work due to an accident or sickness, check if you have mortgage payment protection insurance. You might have taken a policy out when you got your mortgage, or afterwards. The insurance might be with your lender, or a different provider.
You’ll need to check the terms and conditions of your policy to see if you’re covered. The insurance usually covers the cost of your mortgage repayments for 12 months or whenever you can return to work – whichever happens first.
Claim government support
If your income and savings are low enough and you’re entitled to benefits such as Universal Credit, pension credit or employment and support allowance, you might qualify for Support for Mortgage Interest. This is a government loan to help with mortgage interest payments.
Even if you don’t qualify for it, someone else in your household may be able to claim it.
Get free advice for finances
If you’re worried about being unable to meet repayments, there are plenty of advice services that provide guidance for free.
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Ruth Emery is contributing editor at The Money Edit. Ruth is passionate about helping people feel more confident about their finances. She was previously editor of Times Money Mentor, and prior to that was deputy Money editor at The Sunday Times. A multi-award winning journalist, Ruth started her career on a pensions magazine at the FT Group, and has also worked at Money Observer and Money Advice Service. Outside of work, she is a mum to two young children, a magistrate and an NHS volunteer.
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