Homeowners aged 50 and above are particularly exposed to rising mortgage rates, as they are more likely than any other age group to have a variable rate mortgage.
Research into who is likely to be most affected by rising mortgage interest rates, carried out by the Institute of Fiscal Studies, found that 40% of homeowners aged 50-54 have a variable rate mortgage, increasing to 44% of those aged 55–59. This compares to just 15% of mortgagors aged 30–34 who have a variable rate mortgage, and 17% of those aged 35-39.
Variable rate mortgages, as their name suggests, are mortgages with interest rates which can change over time. They include, for example, tracker mortgages, where your mortgage rate rises and falls in line with interest rates set by the Bank of England, or sometimes a separate rate set by the individual lender, and discounted mortgages which offer a discount off the lender’s standard variable rate (SVR). The SVR is the rate you usually move onto once your fixed, tracker, discounted or other type of mortgage deal ends.
As with a tracker mortgage, a discounted mortgage is a variable rate deal because the SVR can move in line with interest rates – or when the lender decides. You can find out more about the various mortgage types that are available in our guide Different types of mortgages explained.
Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage. If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.
What impact will higher rates have on my mortgage?
The Bank of England hiked interest rates from 4.5% to 5% in the thirteenth consecutive rise since December 2021. If you have a standard variable rate mortgage your lender could increase the interest rate by more (or less – but that’s unlikely) than the Bank of England raises rates by. The same applies if you have a discount rate mortgage. According to Moneyfacts.co.uk, the average standard variable rate is currently 7.52%.
If you want to understand what impact further rate rises could have on you, our mortgage repayment calculator can help you work out what your monthly repayments will be based on the interest rate, mortgage amount, and the length of your mortgage term. If you prefer to speak to someone – arrange to get expert mortgage advice* from an experienced mortgage advisor.
There are around 800,000 homeowners who have been on their lender’s standard variable rate (SVR) for six months or more and could be better off if they remortgage, according to the city regulator the Financial Conduct Authority (FCA). As mentioned, the SVR is the rate that you typically roll onto automatically once your mortgage deal finishes and tends to be much more expensive than other mortgage rates.
Homeowners on a lender’s SVR often pay thousands of pounds a year more than those on fixed rate deals. For example, someone with a £150,000 repayment mortgage with 15 years left to run who is borrowing 60% of their property value would be paying £1,392 a month if they were on the typical SVR of 7.52%. Their monthly payments would fall to £1,204 a month if they remortgaged to a best buy two-year fixed mortgage rate of 5.23% – a saving of £188 a month or £2,256 a year.
In 2021, the fraction of the population who lived in households with mortgage repayments worth more than 20% of disposable household income was 11%, according to the Institute of Fiscal Studies.
A spokesman for the IFS said: “Increases in mortgage interest rates push up the numbers paying over 20% of their income as a mortgage to 14% with a 1.25 percentage point rise and to 17% if there is a 2.50 percentage point rise. The latter would bring the share facing this repayment rate almost to the level reached in 2007–08, despite the fact that the share of mortgagors has fallen from 42% to 35% since then.”
What can I do to protect myself against rising mortgage rates?
If you’re currently on your lender’s SVR, or other variable rate mortgage, your mortgage rate and your monthly payments will move up and down depending on what happens to interest rates.
If you’re worried about your mortgage payments increasing in coming months, remortgaging to a fixed rate deal could provide valuable peace of mind that they won’t change whatever happens to interest rates.
It’s usually possible to secure your next deal up to six months before it actually starts, so that you can roll from one deal straight to the next without having to move onto your lender’s SVR in between.
As rates are rising rapidly at the moment, it’s a good idea to get started sooner rather than later if your mortgage deal is due to finish soon. Alternatively, if you know when your current deal finishes, set up a free reminder and we’ll let you know when it’s time to search for a better deal.
Before you remortgage, make sure you check whether you’ll have to pay any early repayment charges to leave your current mortgage. In some exceptional cases, if you’re stuck on a particularly high mortgage rate, it may still be worth remortgaging before your current deal ends, even if there are early repayment charges to pay. It’s worth getting a fee-free broker to crunch the numbers on your behalf to see whether it makes financial sense to move to a new deal if early repayment charges still apply.
Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage. If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.
Finally
The current cost of living crisis means many people are experiencing financial difficulties and so may be finding it hard to keep up with their mortgage payments. If you’re in this situation, it may be worth speaking to your lender to see whether you might be able to extend your mortgage term to make payments more affordable, or if there are other ways they might be able to help you. Find out more in our article What can you do if you can’t pay your mortgage?
Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage. If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.
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