After more than two years of drops followed by recent stagnation, many are predicting the Bank of England will increase the base rate from 3.75% to 4% in November — with even more hikes potentially on the horizon.
‘The markets are factoring in the Bank of England increasing the UK base rate four times over the next year,’ Martin Lewis wrote in latest newsletter, noting that the first of these is predicted on November 5.
According to the Money Saving Expert (MSE) founder, ‘market sentiment about the future has a real impact’ on the mortgage rates offered today — which are currently ‘volatile and trending up’.
Unfortunately, this is having an impact on remortgagers and first-time buyers alike.
But for the millions of Brits whose home loan is up for renewal over the next 12 months, there may be a way to ‘protect your costs’ somewhat.
On a recent This Morning appearance, Martin recommended anyone who falls into this bracket looks into their options ‘before it’s too late’ to avoid ‘paying a higher rate or facing fewer product choices’.
Although it’s easy to forget, and do nothing until your current deal ends, Martin warned this means you’ll ‘usually automatically go on your lender’s Standard Variable Rate, which currently average around 6.5% (and will rise if base rates do).’
If you get ahead of the curve, however, you may be able to lock in a new fix as ‘insurance’ in case this upward trend continues.
Most providers let you lock in a new fix between three to six months ahead of your renewal date, but you should aim to speak to a mortgage broker as early as possible in the final year of your current deal.
‘This gives time to compare products, arrange affordability checks and complete paperwork before your lender’s deadline,’ explained Martin.
‘Brokers can alert you to early mortgage windows, portability options or penalty-free transfers, and help identify lenders still offering competitive fixed-rate deals.’
Ready to review your options? To make the process as smooth as possible, he also shared a checklist of quick steps to take if your mortgage deal ends within a year:
- Find your mortgage end date and note any early repayment charges.
- Gather recent payslips, bank statements and ID for affordability checks.
- Book a meeting with a mortgage broker now — don’t wait until the last month.
- Ask about fixed-rate lengths, fees, and rate-lock options.
- Compare exclusive broker deals and your lender’s reversion rate.
As the consumer finance guru stresses, acting sooner rather than later is worth the effort, ensuring you ‘save money and stress’ further down the line.
Should you overpay your mortgage?
Finding the best deal isn’t the only concern for homeowners when it comes to the threat of hikes.
Martin says one of the most common questions people are asking him right now is whether they should save or overpay their mortgages. And as ever, he has some wisdom to share.
While everybody’s situation is different, and only you can decide what’s best for you, these MSE ‘need-to-knows’ can help you make an informed choice based on your unique circumstances.
First off, look at where your money would work hardest.
If you have more expensive card, loan or overdraft debt, Martin says ‘it’s generally best to prioritise using spare cash to clear them instead’, whereas if your mortgage rate is higher than the (after-tax) interest on savings, ‘overpaying adds up.’
How much could overpaying save you?
In reality, this all depends on your specific rate, amount and repayment term. However, MSE ran the numbers using a hypothetical £200,000 repayment mortgage at 5.5% with a 20-year term, and the savings are pretty huge.
Overpayment amount: A one-off £5,000
Interest saved: £9,600
Mortgage cleared: 10 months earlier
Overpayment amount: £100 a month
Interest saved: £16,950
Mortgage cleared: Two years and three months earlier
Overpayment amount: A one-off £5,000 and £250 a month
Interest saved: £41,450
Mortgage cleared: Five years and five months earlier
For many, overpaying may seem like the right choice.
But before you ring the bank to up your direct debit, Martin urges you to make these two key checks:
Are there overpayment penalties?
Although lenders typically let you overpay a certain proportion (usually up to 10%) of your mortgage balance each year without a penalty, this isn’t always the case.
Even if your provider does offer an early repayment allowance, going above their set amount will likely accrue ‘penalties which could wipe out much of the gain’.
Often, these fees sit around the 1% to 5% range, so it’s important to look at your contract to work out what’s what.
Do I have a cash emergency fund?
‘The fact you’ve overpaid your mortgage doesn’t automatically mean if circumstances change and you suddenly can’t repay, the lender will say “oh, no probs” — you’d still be in arrears,’ says Martin.
His rule of thumb for rainy day prep is saving enough to cover three months of bills (although six months is ‘even better’) in an accessible account.
The podcast host says that unless you have a specific offset mortgage, you should ‘only overpay with any money above that.’
From there, if you’ve done the sums and still think overpaying is the best course of action, Martin recommends making sure you tell the lender you want it to reduce the capital owed, not the monthly repayment.
‘This way you’ll be mortgage-free quicker,’ he adds.
But if they’re making it difficult, only agreeing to lower your monthly repayments, ‘just keep paying what you were or more (effectively overpaying each month) to have the same impact.’
If saving beats overpaying your mortgage...
‘There are still many people with super-cheap 1% or 2% mortgages, who right now are far better off saving than overpaying,’ says Martin.
‘For many others, it’s a closer call. Yet both should be aware that at some point, that deal will end and your new mortgage rate could be far higher, meaning the equation changes.’
Either way, if you decide it’s better to save, he recommends ensuring the money you’ve put away is available when your deal is coming up for renewal, as that way you can use it to reduce your borrowing if required.