Borrowers must act to avoid mortgage payment shock

Thursday’s rate rise, the fourth jump since August, means yet another jump in payments for borrowers with variable rate mortgages, says London & Country Mortgages (L&C).

Thousands of borrowers with fixed rate mortgages will have avoided all of these recent rate rises, but it doesn’t mean they won’t be affected.

Those who managed to secure competitive fixed rates two or three years ago will be pleased they did so, but they are now facing significant jumps in their monthly mortgage payments as these deals come to an end.

Two years ago this month for example, the best-buy 2-year fix was from Newcastle Building Society at 4.49% with a £420 fee, which based on a £150,000 interest only loan, would have cost £561.25 per month. When this deal comes to an end, the rate will revert to Newcastle’s SVR, currently 7.34%, resulting in new monthly payments of £917.50 – a jump of over £350.

Borrowers can minimise this payment shock by arranging a new deal, either with their existing lender, or a new one. Halifax for example has a 2-year fix at 5.34% with a £999 fee and no other switching costs. Switching to this would give monthly payments of £667.50 and a more manageable increase of £106.25.

James Cotton, Mortgage Specialist at L&C comments, “The payment shock for many borrowers will be substantial when their deals to come an end and it’s important that they do all they can to minimise it. The advice is simple: see what new deal your lender is willing to offer and shop around elsewhere. Most importantly, plan ahead and don’t leave it until you’re already paying Standard Variable Rate.”