With interest rates continuing to rise, homeowners are facing concerns about the affordability of mortgages. We take a look at options that might help.
Typical two-year fixed-rate mortgage deals are now, on average, at more than 6%, making the situation difficult for first-time buyers and those looking to remortgage at the end of a reduced mortgage period. With hundreds of thousands of borrowers set to reach the end of fixed deals by the end of the year, it is a good time to consider the available choices.
Extend the term of your mortgage
If you will struggle to pay newly increased rates, extending the mortgage term might be helpful in the short term. While it does mean that you will pay considerably more over the life of the mortgage, it is a way in which payments can be kept affordable while interest rates remain high. If you are able to afford more in the future, you should consider reducing the mortgage term at that time to avoid the extra years’ interest.
Take out an interest-only mortgage
If you pay only the interest, your payments will be substantially lower than on a repayment mortgage, when are paying back the capital. However, this is only a short-term solution as it means that you will still owe the whole amount of the mortgage at the end of the mortgage term.
It can be a viable option for families who might be able to downsize in the future after the children have left home and move to an affordable repayment deal at that time. Otherwise, you will need to consider how to pay back the capital. You could either switch back to a repayment mortgage at some point in the future or build up the necessary savings, for example, in an ISA.
Take in a lodger
If you have room, you could take in a lodger or overseas student. The first £7,500 you earn will be tax-free, under the government’s Rent a Room scheme. If you earn more than £7,500, you will need to complete a tax return, opt into the scheme and use the tax return to claim the allowance.
You may be able to use your home in other ways, for example, as an Airbnb letting or by renting out a parking space if you are in a city.
Moving to a cheaper home
If meeting mortgage costs is going to be very stressful or you will have to give up other things that you enjoy, you might be able to move house to reduce your monthly outgoings. This could be to a smaller house or flat or to a different and less expensive area.
This can also be a good option for couples whose children have left home or those who have more space than they really need.
Contact us
If you would like to speak to one of our expert property lawyers, ring us on 0333 3055 189 or email us at info@lpropertylawyers.co.uk
