Mortgage Deal of 1.85% end this time next year. Should I be doing anything now?

vibez

My mortgage deal of 1.85% end this time next year. Should I be doing anything now apart from saving like a madman?

At the current rates, i'm going to see a £300 increase. Considering I've only got £400 disposable income at the moment, times are going to be very hard or even impossible if the rates climb any higher. I've already reviewed all my finances and cut back as much as I can.

Extending is out of the window as i'm already mortgaged up to my retirement date.

I have £20k in an ISA, so that will give me roughly £1000, which will cover my first 3 months on the new rate.

ACG

You can extend your retirement date potentially. You can always bring it down in time as pay rises happen and the cost of living hopefully subsides. 

You could look at making overpayments now or better is probably to put money into a savings account (if you can get say 5%), you can pull the money out in 12 months and make a lump sum overpayment. 

There is a possibility also that rates may have come down a little in 12 months time, but obviously not a guarantee. 

Ultimately though, there is no magic pill. If you are going to struggle with the new payments, then you might need to look at downsizing . Just keep an eye on things into the new year. If you are still in a position where the rate rise would be a problem, then you need to consider you might have to accept delaying retirement or downsizing. 

If it is of any benefit, my mortgage currently runs until I am 68. I have no intention of keeping my mortgage until then. But I am self employed, I have good months and bad months. It was better to extend the term and overpay during the good months and go back down to the minimum in the lean months. 

Altior

It's a bit of an old fashioned concept seemingly, but in the past people used to influence the other side of the ledger, ie earn more money. For example, OT, promotion, better paying job, second job, starting a new project / business etc. There's not much one can do about interest rates and fixed costs, the easier one to change positively is the income side. The upside of this particular financial cycle is that there is no shortage of work opportunities, and nowadays there are plenty of zero hour contract type casual labour options, contracting and so on. Depending obviously on location, access to transport, skills etc. 

vibez

Thanks. I guess I can rule out switching mortgage now to prevent any further increase? Hate to be £300 out of pocket with today's rates but £500 this time next year.

In terms of savings accounts, if I go over the £1000 tax free interest limit, do they just tax the interest on the portion over £1000? and not the full amount?

Just realised my state retirement age is 68 and not 65, so I guess there is a little wriggle room there.

Final question. The mortgage charter option of 6 months interest only - would I do that on my current deal or the new one in a year? How likely is a provider to let someone change to interest only within the first couple of months?

simon_or

I wholeheartedly agree with ACG on the term. Extend your term to the maximum possible, either with you current bank or with a different bank. You can always overpay when you have spare cash but the bank will not let you underpay when you have cash flow issues.

If you're working in an office or desk bound job, then your retirement age is what you state, you can always choose to stretch it. My mortgage term goes to 80 and there are a handful of banks (I know of Accord and Barclays, I'm sure there are more) that will let you do that.

The state retirement age is immaterial with most big banks, unless you're working in some kind of job with an enforced retirement age.

Don't wait until 6 months to secure a rate or look at your options. There are banks like Nationwide or Co-op Platform that will let you secure a rate 8-9 months before your fixed rate expires.

Finally, check what mortgage charter options your current bank offers regarding extending term. For example, as per what Nat West is saying, as part of the mortgage charter they are going to allow customers to permanently extend their mortgage term to 75 years of age if they wish to without a full assessment, along with the 6 month interest only option.

simon_or

Au contraire, it's not really old fashioned. If anything, it's the other way round. More people now have second incomes or 'hustle' incomes than they did a few decades ago, and people now move jobs far more often than they did previously, sometimes by choice and sometimes not.

Housing accounts for a far bigger % chunk of household incomes than they did 20-30 years ago, so changing your primary source of income in those circumstances perhaps comes with its own set of complications compared to when housing was much cheaper and mortgages didn't take up as big a bite out of it.

Altior said:

It's a bit of an old fashioned concept seemingly, but in the past people used to influence the other side of the ledger, ie earn more money. For example, OT, promotion, better paying job, second job, starting a new project / business etc. There's not much one can do about interest rates and fixed costs, the easier one to change positively is the income side. The upside of this particular financial cycle is that there is no shortage of work opportunities, and nowadays there are plenty of zero hour contract type casual labour options, contracting and so on. Depending obviously on location, access to transport, skills etc. 

Altior

I'm unsure about most of that, aside from employment mobility. 

Housing accounts for a far bigger % chunk of household incomes than they did 20-30 years ago

Not sure if that is correct or incorrect, but do you have the data source for this? It would be quite interesting to review, as so much has changed, the ballooning of the welfare state, taxes, households having multiple full time earners etc. 

It struck me from the OP that it had not come up in many online conversations I've read around the challenges of the recent changes in economic conditions (changing the income side of the ledger). 

simon_or

Altior said:

I'm unsure about most of that, aside from employment mobility. 

Housing accounts for a far bigger % chunk of household incomes than they did 20-30 years ago

Not sure if that is correct or incorrect, but do you have the data source for this? It would be quite interesting to review, as so much has changed, the ballooning of the welfare state, taxes, households having multiple full time earners etc. 

It struck me from the OP that it had not come up in many online conversations I've read around the challenges of the recent changes in economic conditions (changing the income side of the ledger). 

Do look it up, all the data about house price to income ratios, the changing impact of mortgage interest rates over the decades is out there.

Pensioner benefits have indeed been increasingly steadily as the percentage of elderly folk increases, people are living much longer than they did in the 70s and 80s and the gov has introduced costly policies like the triple lock. In 2023-24 it's expected to hit 11.5% of public spending, up from 10.4% in 2022-23.

I can agree that one should look at increasing their income but with all respect, it's just common sense that an individual would like to earn more income, irrespective of whether their mortgage rate was going up or not. It's a bit too obvious to need to be stated imho.

Altior

With respect, house price to income ratio is not the percentage of household income spent on housing. They are entirely different variables. 

Extending the mortgage term (if an option) is equally 'obvious'.

simon_or

Altior said:

With respect, house price to income ratio is not the percentage of household income spent on housing. They are entirely different variables. 

Extending the mortgage term (if an option) is equally 'obvious'.

House price to income is most definitely one of the factors that feeds into what percentage of household income is spent on housing. 

Extending the mortgage term might be an obvious option for someone as knowledgeable as yourself. But, not everyone is aware that it may be possible to extend beyond state retirement age, or 70 or 75 or even beyond your stated retirement age, based on your current income.

Altior

House price to income is based on one income, and the status of the market at the time of the snapshot. It does not take into account interest rates for example. This equation was completely different, even for someone buying property a few years ago. If they bought 10 years ago, it's wholly irrelevant. 

As it happens, these stats don't take into account huge regional variations within the UK, and the London/SE effect massively distorts the averages. It would have been an interesting data set to dig into, if it exists. As, as I allude to, so much has changed, over that period. 

It actually goes a long way to explaining why house prices are so high now, compared to what they relatively were a few decades ago. Lower interest rates meant more of the repayment could go on the capital (the total repayment however being the same, meaning percentage of income used on housing staying static).