If you're struggling with your mortgage due to higher living costs and interest rate rises, find out more about your options and where you can get support.
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Higher interest rates, coupled with the increased cost of living, may mean you’re worried about how to support yourself and your family.
If you’re looking for a new mortgage you may be worried about whether you’ll be accepted by lenders. If you’d like advice on a new mortgage, a mortgage broker or lender will be able to help you or point you in the direction of someone who can.
If you have a mortgage already, you may be concerned about how you’re going to afford your mortgage payments, either now or in the future.
If you’re finding it hard to keep up with payments, it’s important you know what your options are and where to go for help and support.
Mortgages affected by interest rate rises
There are many different types of mortgages. The impact that interest rate rises have will depend on what type of mortgage you have, or if you’re on a deal that’s about to end.
Tracker mortgages are linked to an external interest rate, such as the Bank of England’s base rate, which can change. If you’re on a tracker mortgage, you will already have seen an increase to your monthly payments due to recent base rate rises.
Variable rate mortgages can rise at any time, as the interest rate is typically set by your lender and isn’t directly linked to an external rate. If you’re on a variable rate mortgage, it’s likely that your monthly payments have already been affected.
Fixed rate mortgages won’t immediately be affected by the recent rate increases. However, if you’re close to reaching the end of your deal, or want to re-mortgage, then the rise in interest rates is likely to affect you.
Getting a mortgage for the first time
If you're taking out a mortgage for the first time, you may be worried about the process, and whether the higher costs of living are likely to affect your application.
Taking out a mortgage is a big financial commitment, so lenders must check you can afford the repayments.
If your personal spending has increased due to the rising cost of living, it might reduce the amount lenders are prepared to lend.
Lenders will look at the money you have coming in (your income) and how much you have going out (your expenditure) to assess whether you can afford the repayments. They're likely to ask for documents such as:
- proof of your income
- recent bank statements
- proof of your deposit that you'll use to buy the property
Lenders may also ask about any rent you’ve been paying, as this will help them understand your overall financial position. However, their main concern will be whether you can keep up with your mortgage payments when you’re no longer renting.
In many cases, lenders will also assess whether you’ll be able to afford your mortgage if interest rates rise in the future. This is often called a stress test.
If you’re accepted for a mortgage, the offer will normally stand for between 3 and 6 months, depending on the lender.
Concerned about your mortgage as an existing borrower
Your mortgage may be your biggest monthly expense, so managing your household budget may feel difficult if your mortgage payments have increased. Budgeting is essential if you’re struggling to afford your financial commitments and prioritising your debts is important. Read more about how to manage your financial situation.
If you're worried about being able to afford your mortgage payments, you should contact your lender as soon as possible. Lenders should treat you fairly and will give you support tailored to your circumstances.
If you can keep up with your monthly mortgage payments, you should continue to do so. But if you’re struggling to pay, your lender has options to support you. Some of these are explained below. Making changes to your mortgage, even temporary changes, may result in higher monthly payments in future, or paying back more overall. It can also affect your credit file.
If you're struggling to pay then, depending on your circumstances and the terms of your mortgage, lenders might temporarily reduce your rate, or give you longer to make payments.
Lenders can typically also help you consider the following options:
Term extension: Extending the term of your mortgage can be a way to reduce your monthly payments, but it will increase the amount you have to pay back overall. If extending the term takes your mortgage past your expected retirement age, your lender may carry out an affordability check.
Moving to interest-only: Interest-only mortgages are only available to those who have a credible way of repaying the total amount at the end of the mortgage. This doesn’t mean relying on a potential future windfall such as an inheritance or bonus. You also can’t speculate that property prices will rise enough to allow you to buy a smaller home and still pay off the mortgage.
For more information on repaying an interest-only mortgage, visit MoneyHelper.
Temporarily switching to interest-only: A temporary switch to paying interest-only may be an option if you need to reduce your monthly payments for a short time. But if you only pay the interest, when you go back to repaying your mortgage, your monthly payments will be higher than before.