Preparing for a mortgage interest rate increase

Our handy guide for those with fixed rate mortgages ending in 2024.

If you’re one of the 1.5 million homeowners whose fixed rate mortgage ends this year, chances are you’ve been scoping out your options while crossing your fingers that inflation and interest rates all head in a downward direction. 

Mortgage interest rate increases aren’t a new concern for homeowners. For those facing higher rates than their previous fixed rate agreements, being able to afford mortgage interest rates is a daunting prospect and finding ways to reduce expenses and increase income has become a top priority. If your current mortgage deal ends in 2024, here are some things to consider to make the choices ahead a little easier.

Desk with laptop, cup of coffee, phone and notepad

Be in the know with why mortgage interest rates are rising

It’s hard to predict exactly what will happen to inflation and interest rates over the next year. Both are headed in the right direction - save for a small unexpected blip in December when inflation unexpectedly rose by 0.1%, the first increase in ten months.

Mortgage interest rates increases are a result of high inflation, which has impacted the Bank of England’s base rate. At the moment, the BoE is aiming for 2% inflation and there are predictions this will happen sooner than originally predicted. If we see a fall in inflation, a reduction in interest rates will follow. There are predictions this will start to happen from March this year. In fact, swap rates (the rates based on what markets think future interest rates will be) are falling, which gives a good indication interest could be lower by the time your current deal ends.

What if I can't afford mortgage interest rates?

It helps to plan ahead for an interest rate increase. In order to do so it’s important to understand how interest rate increases affect your mortgage. If you are paying a higher interest rate, in most cases this will increase your monthly mortgage payments, which has obvious affordability implications.

There are some who will have already thought ahead and planned for increased monthly outgoings so they’re not struggling to pay in the long run. That can be hard to do when you don’t know for certain what your new rate will be.

Budget in advance of rates going up

One way to prepare is to budget for higher monthly mortgage payments in case of an interest rate increase - but this option depends on your circumstances. It can help to consider where you could make other cost adjustments or perhaps save money each month in readiness for increased outgoings. Before making any decisions, it's crucial to review your overall financial situation. Take a close look at your income, expenses, and any other debts or financial commitments you have. This will help you determine how much you can comfortably afford to pay towards your mortgage each month. If you are looking for some advice on managing your finances, our Cost of Living Support Hub can provide valuable guidance and resources.

Overpaying your mortgage

Is it worth switching to an interest only mortgage?

One of the first things to consider is whether you want to stick with a fixed rate mortgage or explore other options. Fixed rate mortgages provide stability and peace of mind, as your interest rate remains the same throughout a fixed term. However, if you believe that interest rates will continue to decrease in the coming years, you may want to consider switching to a variable rate mortgage.

Different types of mortgages

Do your research and seek guidance from a broker

As with anything, doing some research and shopping around for the best deals can go a long way when trying to handle mortgage interest rates increases. The best starting point is to review what deals are currently available, and use these as a benchmark. Once you have a good handle on what the market has to offer, seeking guidance from a broker can help to finetune what is right for you. It’s a broker’s job to know the market inside out, so their knowledge of different lenders’ criteria can help point you in the right direction for a mortgage for you. Brokers will also be aware of the best rates and ultimately help you get the best deal on the market.

Remember, the end of your fixed rate mortgage doesn't have to be a stressful experience. By considering these factors and seeking professional advice, you can make informed decisions that will set you on the path to financial stability.