Mortgage repayment hike - what to do?

[ladybluesky]

Facing the prospect of a £600 hike in mortgage payments in July next year if interest rates/mortgage rates don't come down. Can't extend term due to age of partner. Both full time and earning full potential and good joint salary/ no childcare costs or school fees but cannot see a way of cutting anything more from monthly outgoings as we are not big spenders except on high housing cost to be in area for good schools and close to work. Interest only mortgage for 2 years would help stave off the inevitable but would mean a big (I think?) jump in repayments when switching back to repayment. Anything else we can do. Grateful for any thoughts, ideas or avenues I haven't explored. Thank you!

Unless you post incomings and outgoings people cannot suggest areas to cut back on (if what you are asking is how to generate 600 extra month)?

Or perhaps you are asking for side hustle ideas? (MSE has ideas, as does the £10 a day threads).

Over pay as much as you can now. Downsize. Change area. Work an evening job.

Overpay now, see if term can be extended, they are being fairly flexible as you can then overpay to reduce the term when rates reduce. Rates are likely to reduce next year from what I've read but not necessarily enough to stop a significant hike

You’ve probably done all of these -
Speak to an ifa who does whole of market, they may come up with a mortgage product or idea that you haven’t found.
Go through everything in you budget and see what you can change/reduce/cut out altogether.
Look at moving - but take into account stamp duty/legal fees/removal costs/extra time travelling to work - at least you can rule the idea in or out based on costs and not emotions.
Look to see if either of you can take on an extra job, now isn’t the time to be too proud to take on a cleaning job etc if it means keeping a roof over your head.

look long term - it might be right to take interest only now, if you have a plan to deal with any future repercussions of doing so. - a good IFA can advise better.

I second all of the above and also rent out a room?

Extending your mortgage by 5 years might reduce things to a manageable level?

Placemarking as I am similarly screwed.
I will have to take in a lodger.

We managed to get 1% of our hike shaved off when we had our house revalued - a slight increase in value lowers the original LTV (we dropped from 75% to 60% LTV since the start of our fixed term) and got us a slightly better rate.

Sorry I was asking for ideas on mortgages and whether there were alternatives other than extending term or interest only. Would look at interest only if it didn't mean monthly repayments much higher after 2 years (by which time we could have tried to save a bit by budgeting)

Thanks for all these ideas - hadn't actually considered overpaying between now and next year but that's a good idea (would be instead of saving).Also lodger is a possibility rather than moving. If there are lenders that allow extending the term beyond 70 does this exclude us from better mortgage deals on the market? We are 50LTV so fortunate in that respect.

Really helpful thank you. Done most but not all.

This is absolutely no help, as moving is sooooo expensive, but don't forget that, once your children have started school, you can move out of the catchment area. They won't lose their place.

I realise you also work nearby, etc. But you know. Anyway. As you were.

Depending what your rate is now, you might be better putting your money in a decent interest savings account and then paying off a lump sum before switching products.

But psychologically it might be easier to just start paying a larger monthly mortgage sum. Depends on your level of discipline towards finances

Also make sure you secure a rate six months before your deal ends. You don't have to take it but covers you in case they go up rather than down.

I’d just like to say that this often comes up and people say you should save if the interest rates in savings are better BUT -

1. If you’re looking at a short term (rather than comparing over ten years) really how much better off does saving instead of overpaying leave you? Is it worth it?
2. And second savings accounts you would presumably trickle the equivalents of monthly overpayments into are possibly easy access or notice accounts. The temptation to dip in if shit happens just this once is high. Overpayments cannot be dipped into.

There is little point saving when you are in debt other than for cash flow purposes. I would definitely look at over paying, also switching to interest only, but still reducing the capital as you are able. Interest only is likely to reduce your payments to a manageable level and would maybe leave you some spare to still reduce the capital.

Pretty sure First Direct will allow you to extend the term well beyond age 70. They were pretty competitive rates when we last looked into it too. Also they have no limit on overpayments so you could extend to lower your payments in the short term then overpay as much as you can when you can. Good luck

I'm going to go against the grain here and say that overpaying is not a good idea in your situation. If you can afford your mortgage now, surely it makes sense to keep aside what extra cash you have to help you meet your monthly payments when they are £600 higher a month i.e less affordable. The time between now and your renewal is not long enough for your overpayments to make any significant difference to what your new monthly repayments will be. So I would be disciplined, keep money aside and think of it as a top up to your income when your rate is higher and you need the cash accessible to cope with the increased monthly outgoings.

I agree with the above post, it seems very sensible

This makes a lot of sense, thanks. Will go ruthless on budgeting and put any extras aside to offset the higher payments next year. And hope that monthly payments become more affordable as we pay down the mortgage even if rates stay as they are. Fingers crossed they don't go up much higher and we both keep our jobs 🤞🤞🤞🤞🤞🤞🤞

Use a couple of brokers to get best deals. We found London and country to be brilliant.

If you can secure a longer mortgage then you can also amend your DD so you over pay the sum required to finish the mortgage in a shorter time (i.e where you should originally have done).

The advantage of this is that in the event of a big car repair or broken boiler you can always take a month off the overpayment

I think going interest only only works if you expect a big jump in available cash soon, i.e. child in nursery starting school, one spouse finishing a qualification and starting a job, child at private school finishing A levels shortly.

Otherwise, you are just putting off the problem and may be in a worse financial position when it eventually hits.

A lot depends on what you mean by ‘can’t afford £600 extra’. I would have to make changes to my life that I don’t want to make but I could just about do it. Fifteen years ago it would have literally been impossible. If you mean the latter and if there is no prospect of affording the rise, you may want to look at selling now while you have a buffer to cover moving costs etc.

Seconded

OP I thought people could ask for interest only for 6 months in the first instance with some people being able to extend to 1 year. I don't think the lender will accept 2 years. A pity you can't just increase the term but you say you can't due to your partners age. Can you overpay a bit now before your rate goes up?

Hopefully rates by next July might be just a bit lower. Inflation went down again to 6.8 percent.

I’d try to save a buffer and put it in something you can access without a penalty but not your normal bank. I wouldn’t overpay - it’s locking up money which you may need for a financial loss compared to saving. E.g I have an account with Cynergy which is complicated to access but interest is 2% higher than my mortgage rate so there’s a small financial benefit compared to overpaying. Then get the best mortgage offer you can 6m before you need to renew but keep checking after that for a better rate. It does look like there will be at least a modest drop in rates - some rates below 5% now. I wouldn’t make firm decisions about selling right now. So much could change in the economy in a year or so.