Are you approaching the end of your fixed rate deal and worried about what happens next? What if you have bad credit?
The cost of living is at the highest since the 1950s. With interest rates increasing, you might be concerned household finances will be squeezed further as mortgage bills increase.
And in this uncertain environment, having a fixed rate mortgage that’s ending might feel like a huge worry. Remortgaging could cost thousands of extra pounds each year.
But there are certainly other options than simply securing the best rate you can and fixing it for a defined period of years.
According to Moneyfacts the average rate for a two-year fixed rate mortgage has increased by 4.08 per cent, from 2.38 to 6.46 per cent. Five-year deals usually come with a lower interest rate than two-year deals. But the real issue is the Bank of England base rate increases. At the time of writing, there have been eight base rate increases since December 2021.
As well as volatile interest rates, buyers are facing an increase in the value of houses too.
It makes for a pretty bleak picture.
But asking prices are dropping slightly, as are interest rates. While there are lenders delivering standard mortgage rates at below 6%, it’s expected that rates and house values will remain high into 2023.
And unfortunately, if you’re looking for a mortgage with an adverse credit history, it’s common for these to attract a higher rate of interest.
Where interest on a standard rate mortgage might be around 5%, an application for an adverse credit mortgage, for example where the borrower is looking for an IVA mortgage or recent Defaults or CCJs, the interest rate is likely to be around 8-10% for a fixed rate, which will be dependent on the level of deposit you have available.
It’s worth noting that interest rates and product availability are changing at lightning speed. Currently it’s unlikely the interest rate when you apply for your decision in principle will be the same when you submit your full application
If you’ve agreed to buy a house and are yet to find a mortgage or your fixed rate is coming to an end there’s no need to panic, mortgages are still available. But everyone is being hit with huge increases in interest rates, so it’s important to act as quickly as you can.
It’s tempting to think in terms of fixed rate mortgages. You get a rate and a defined payment each month, which of course helps you budget.
But if you’re coming out of a fixed rate mortgage, you should consider other options.
In the current climate a fixed rate mortgage isn’t always the best option. So definitely look at current tracker mortgages and discounted mortgages. They may offer better rates and you’ll have the flexibility that doesn’t come with a fixed rate. You can sometimes leave a tracker mortgage at any time without being hit by the early repayment fees that come with fixed rate deals.
Tracker mortgages follow a base rate of interest, most often the Bank of England base rate.
You’re not tied into a fixed rate, so each month your payments could go up or down, according to what’s happening with interest rates. You can choose a tracker for a fixed amount of time and if the interest rates rise, some lenders will let you switch to a fixed rate without a fee. Currently most lenders are only offering 2 year terms on tracker mortgages.
Most trackers have a rate that is slightly higher than the Bank of England base rate, but you can often get a good introductory offer.
But some tracker mortgages come with what’s known as a collar rate. A collar rate is a minimum interest rate that a lender will apply to the loan.
If Bank of England rates drop your mortgage payments might not follow suit if a minimum interest rate has been applied to your deal.
The Daily Mail reported that some trackers can be as much as £1,000 a month cheaper than a two-year deal on a fixed rate.
That may be an extreme figure, but it pays to look beyond fixed term deals.
Often, the main reason to remortgage is to get a better deal.
And if you’re looking to remortgage you should compare rates and speak to a mortgage broker sooner rather than later. Consider locking into a new deal as soon as you can. It’s the same advice if the end of your current fixed rate deal is six to nine months away.
If your loan is small, for example under £50,000, it might not be worth remortgaging. Instead look to switch products with the same lender. Some lenders won’t take on a new mortgage below a certain amount.
What you want to avoid is being stuck on your lender’s standard variable rate after your deal has ended.
Consider all the options, beyond fixed rate deals.
Don’t take it personally. The Financial Conduct Authority regulations require that a lender carry out in-depth checks to ensure that your mortgage is affordable. And after any initial deal period has ended too. Lenders won’t offer a mortgage without the proper consideration.
High street lenders will be looking for a very good history of handling debt, if not a faultless credit history. If you do have a credit history that’s not spotless, and looking for a new mortgage or remortgaging, high street lenders won’t have the answers.
However, there are specialist mortgage lenders who are willing to give you a mortgage. The key is having a broker with the knowledge and experience of adverse credit and who understands the lenders’ application requirements. Each adverse credit lender will have their own range of mortgages and criteria for success. It’s understanding how the lenders applies this criteria that is vital in getting an application accepted.
If you’re worried about your deal ending, don’t panic. But don’t leave it too late. When your deal ends, you’ll be transferred to your lenders standard rate and you want to avoid this.
Talk to a broker and talk to your current lender to see where the best deals can be had.
If you are worried about having a less than spotless credit history, choose a specialist bad credit mortgages broker who deals in getting mortgages for borrowers with an adverse credit history.
If you want any advice on your circumstances, get in touch with the team at Adverse Mortgage Advisors. We are available to offer as much advice, guidance or even assistance with your mortgage needs.
If you have questions about getting a mortgage with an adverse credit score, read our FAQs. Our wealth of knowledge within this market means that we’re confident in our ability to offer specialist mortgage advice and secure the mortgage you want regardless of your credit history.