Your mortgage is one of the biggest financial decisions you’ll ever make. Whether you’re taking that first step onto the property ladder, or your existing rate is ending and you’re searching for your best option, you need to ask these important questions and ensure you have a clear understanding of the current situation.
Mortgage rates recently reached a 14-year high, with the average rate for a five-year fixed deal now a considerable 6.51%. Most financial experts agree that these rates aren’t coming down anytime soon, and in contrast, another Bank of England (BoE) base rate increase is expected shortly. This in turn will push interest rates up even higher.
In a complex and convoluted economic situation like the one we’ve faced with in 2022, it’s essential to be fully informed. Even more so as a self-employed professional, with a potentially fluctuating income and a reduced safety net compared to the typical employed person.
This article details five essential questions about your mortgage that you need to ask in the current climate. Read on and get the answers you need to make the right decision.
1. Why are the rates rising?
Across the world, the BoE and other core financial institutions are working hard to try and curb inflation, which has been pushed to record highs by supply chain disruptions and economic issues from several sources.
In an attempt to bring down inflation, the BoE has been forced to increase the base rate several times over the last nine months, and interest rates in the UK (and the wider world, as other banks have done the same) have spiked as a result.
2. What might happen to my mortgage next?
Until the world economy stabilises, the global financial markets will continue to be turbulent, which in turn means they are unlikely to settle in the UK. According to forecasting experts, mortgage rates will continue to rise for the foreseeable future.
It has also become harder to find a traditionally “good” mortgage deal, as many lenders have been prompted by economic uncertainty to pause or scrap some of their products and packages. This, combined with hiked prices and rates, reduces available options.
If you’re not yet a mortgage holder, it will be tougher to become one in this climate – though not impossible! If you have a mortgage, you can expect your monthly repayments to increase. (If you’re on a variable rate plan, they probably already have, and if you’re on a fixed rate plan, they likely will when this plan comes to an end – especially if that end is coming soon.)
3. Can I afford the worst-case scenario?
This is essential to ask yourself as you consider your mortgage and situation. There is a reasonable range of outcomes, but at the worse end are some that will see you paying more, borrowing more, accumulating more debt, and perhaps even facing repossession.
Can you afford the changes that might come, and if not, what can you do to prevent a worst-case scenario? Should you consider downsizing to reduce your mortgage amount, for example? What other commitments could you remove in order to swallow the increased mortgage cost?
4. Is this the right time, or can I wait?
There’s not a single second in this life when the economic situation is 100% certain, and nothing is going wrong across the globe. But 2022 might feel particularly uncertain and discouraging, and it might lead you to ask yourself, ‘Is this even the right time to be looking for a mortgage?’
Only you can honestly answer this question because only you know your priorities and plans for the future. You might put yourself in a better situation if you wait it out. Experts say things could stabilise in approximately three years. A key thought to remember is that mortgage products can be changed at certain times, the base rate impacts mortgages rate, but your loan to value does too. If you property goes up in value, you could secure a lower rate next time because of this.
5. What is the worst-case scenario if I wait?
Whilst some financial experts say that things could stabilise in a few years and that if you wait to obtain your next mortgage until this time, you’ll be in a better position. But how many financial experts anticipated COVID-19? Or Russia invading Ukraine?
When you bet on the future, you can’t be sure of the outcome. If you find a mortgage deal now, you’ll at least know what you’re working with.
Consider the worst-case scenario in terms of your mortgage and repayments, but also consider the potential worst-case scenario if you don’t act and the market continues on its trajectory for another decade. Will you regret not buying a home when you could? Even through the pandemic, and more recently the Ukraine war and Cost of Living crisis, property has continued to gain value, albeit at a slowing rate. What could the cost of your property purchase or home move be in another 3-5 years’ time?
For more advice on managing your money and mortgage as an independent professional, don’t wait to reach out. Get in touch today, and we’ll show you how much our organisation helps its members.
Your property may be repossessed if you do not keep up repayments on your mortgage.
CMME is a trading name of CMME Mortgages and Protection Limited. Authorised and regulated by the Financial Conduct Authority (FCA reg. 414798). Registered in England No. 04886692. Registered Office: 2 Glass Wharf, Bristol, Somerset, BS2 0FR
