The events of the past week since the new Conservative governments "Mini Budget", have taken centre stage on the media but could you get caught up in the information overload, hype and mis-information?
The major media wesbites and TV News programmes are awash with interviews with "Mr & Mrs representative mortgage holder" telling their tales of woe, and how they've had to exit their current mortgage deal early in order to secure a new fixed rate now to avoid paying even higher mortgage rates at some point in the future.
STOP!!!
Paying an early repayment charge (ERC) to exit your current fixed rate deal is rarely going to be good advice. Typical ERC's could be around £1,500 - £2,000. That's a lot of months of increased mortgage payments to offset before you would actually be any better off.
Every individual mortgage customers details and circumstances are different so DO NOT simply follow the herd.
Customers who took out new mortgages over the last 5 years or so have benefited from very low interest rates of around 2 - 2.5%, often with the added benefit of being fixed for 2 - 5 years. Historically Average interest rates were in and around 5%. Within my working career they have been as high as 15.4%.
A knee jerk reaction now could actually cost you more in the long run. One thing which is true is that the number of fixed rate deals available has dropped dramatically in the last couple of days so your current choice of deals is very limited. You could be chosing from a very limited number of potential lenders and deals - the best of a bad bunch. It is expected that this is a limited time, although nevertheless dramatic, event and it will resolve in time. It is unlikley that rates will go back to the very low levels of the last few years so there is an element of "the party is over" and that this is the "new reality" however, even at the higher end of predicted mortgage rates of around 6%, it is simply a return to normality.
For every mortgage that we have arranged in the last few years we have run an affordability check that has stress tested the mortgage payment at rates in excess of 6% so, whilst no-one wants to pay more than they have to, your mortgage should still be affordable.
Rates are expected to rise for the next year or two during which it would be expected that the current financial crisis will have disipated. So a squeeze on finances should be expected but if you're currently on a fixed rate it is unlikely to save you money if you buy out of it and secure at todays rates. Sit tight. Take advice from your mortgage broker. Deals will return, and at present there are still some very acceptable 5 year fixed rates available as they take into account the longer term rate expectations rather than these sudden, potentially short lived events.
Will you be getting a rate around 2.5% in the foreseeable future - probably not.
Will you still get a deal that allows you to maintain your mortgage payments and retain your home - probably yes.
If you are genuinely experiencing financial difficulty then don't bury your head in the sand. Seek help and advice quickly and take APPROPRIATE action. Cut back where you can. Maybe change your mortgage term to make it more affordable or settle some other debts. Maybe sell that second car or cut back in other areas. Protect the roof over your head as a priority and if you need to downsize then don't rule that out.
For more information contact our sister company www.nimortgages.com
