Follow our five effective strategies to manage your money
With the Bank of England’s latest decision to increase interest rates from 5 per cent, to 5.25 per cent, many mortgage holders are worried about what this may mean for them and how they can prepare their finances.
By December 2024, it is estimated that 1.6 million UK homeowners on a fixed rate will see their deal end, which is likely to lead to higher costs – while those on tracker or variable rates face an uplift in costs immediately.
To help you manage these potential increases, we have looked at a few strategies that could help to reduce the shock of higher mortgage repayments:
- Interest-only: You may be able to switch to an interest-only mortgage, allowing you to pay the interest on the borrowed amount rather than paying for interest and the purchase of equity. This can help to keep payments manageable but it won’t reduce the remaining mortgage balance at the end of your term.
- Extended mortgage term: Typical mortgage terms are around 25 years, but many products on the market allow you to extend this to 30 or even 40 years. Extending your mortgage term decreases your monthly payments but could potentially cost more in interest over the life of the mortgage.
- Generate income from your property: Although not every mortgage will allow it, you could look at ways of renting out or subletting your property. Popular websites, such as Airbnb, could allow you to let out your property for a short period. Thanks to the Government’s Rent a Room scheme you will receive a tax-free allowance of £7,500 per year for income generated from your main home.
- Overpay: It may seem like adding additional costs by overpaying your mortgage now is the opposite of what you are hoping to achieve. However, if you are on a low fixed rate deal you could make overpayments of up to 10 per cent (with most lenders) to reduce the size of your mortgage affected by higher interest rates in future.
- Downsizing: While not an option for everyone, selling your property and moving to a smaller one could reduce or even eliminate your mortgage entirely. Proceeds from the sale could potentially cover outstanding mortgage balances and might also provide you with funds to secure alternative accommodation.
If you haven’t done so already, now is the right time to review your mortgage plan, as part of your wider Life Wealth Plan, and seek professional advice to ensure you’re making the best decisions given your circumstances.
We are here to help you navigate these financial waters and ensure you’re well-equipped for any changes that come your way.
