The mortgage market is experiencing some uncertainty right now, as interest rates have risen further despite predictions that they have stabilised by the summer. In June, the Bank of England (BoE) unexpectedly put up interest rates 0.5 percentage points to 5%. This is a huge increase from a record low of 0.10% in 2020.
For mortgage holders who enjoyed cheap deals during the pandemic property boom, the sharp increase in interest rates will be especially painful. The Guardian reports that by 2026, the BoE expects that one million households will be paying an extra £500 per month on their mortgage, as current fixed term deals come to an end.
There is even more bad news to come, as inflation remains high and interest rates could be raised further. Some experts predict that interest rates will peak at 6.25% early next year. So what does this mean for borrowers who are facing eye-watering monthly increases in their mortgage repayments?
The first step is to check your current contract to find out exactly when your deal comes to an end. The majority of people in the UK sign up for two of five year fixed deals. It is usually possible to lock in a new deal up to six months in advance of the start date, so this is definitely worth considering in these unpredictable times.
You are free to take up a different deal if you want to nearer the time, so it’s well worth taking this step to protect yourself from likely further rate increases. Your existing lender might tempt you to stay with them by offering a ‘product transfer’, which switches you to another of their own products.
By taking up this offer, you may avoid extra fees and may not have to undergo an new affordability assessment. This may be a point to consider if your income has dropped, or if you have had any adverse incidents that have been recorded on your credit file. This is because your credit score will be lower and many lenders will be more wary of offering you a new deal.
However if your lender does want to carry out a fresh assessment and your circumstances have changed, it may be worth seeking the advice of a specialist mortgage broker. They will have established contacts with lenders who cater for bad credit mortgage customers, and will be able to access deals that are hard to find on the open market.
The amount of interest you will be charged on a specialist mortgage deal is likely to be higher than it would be for a regular customer for a mainstream lender. Your case will be assessed on an individual basis, and the lender will usually want to find out more about the reasons for your adverse credit incidents.
If you have a reasonable explanation for a missed payment or arrears, and have since made an attempt to repay the money, then this will put your application in a more favourable light.
If you have more serious issues such as a debt management plan (DMP) or an individual voluntary arrangement (IVA) then it may still be possible to get a deal, but again the lender will want to know some background information.
This may be in regard to how long the arrangement has been in place, how much money is involved, and whether it involves debts with multiple lenders or just one or two. If at all possible, make every effort to keep up with the repayment terms you have agreed with your creditors, and keep to a strict budget in the months before you need to remortgage.
As for what the future holds, the Bank governor Andrew Bailey, commented: “… we are trying to balance having the transmission function of monetary policy with two things … one is the resilience of the banking system, and two, its ability to support customers and manage the consequences of this. But there still will be consequences of increased interest rates.”
If you are looking to remortgage with bad credit, please get in touch with us today.
Your home may be repossessed if you do not keep up with your mortgage repayments.
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Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it. The guidance and/or advice contained within this website is subject to the UK regulatory regime, and is therefore targeted at consumers based in the UK. The overall cost for comparison is 4.8% APR. The actual rate available will depend upon your circumstances. Ask for a personalised illustration.
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