Worried our mortgage will be unaffordable when fixed rate ends

[SorryNotSorry6]

..and I don’t know what we should do about it. We’re currently on a 3.9% fix which costs us £2140 per month so it’s already quite a big mortgage by a lot of people’s standards. But it is manageable for us. Our fix runs until August 2027 but I just did an online calculator thing and the best rate it offered us came to £2450 per month 😮 so an increase of £300. I’ve read that there will be up to 4 more increases in interest rates before then and realised that if rates go up to 6% then we will be looking at £2800 a month which we really can’t afford. I actually feel quite sick. We’ve got 34 years on the mortgage already so don’t think we can increase this to reduce payments. Sorry to sound stupid but what do people do in this situation?! The only answer is to move surely?

I guess circumstances can change? We had a big mortgage, but we could easily afford it.
Then Covid hit and my husband was made redundant. Fortunately for us, we only had a few years left on the mortgage and were able to pay it off with investments. But if we didn’t have savings, we would have been in a fix.

Multiple comments stating you have overstretched yourself are not helpful.

Look at your LTV percentage? how much equity do you have? are you close to 40% equity where you can tap in to the best rates ?

Look at all your direct debits and see what you can cancel.

What age is your youngest child?

I always find comments which make downsizing sound like the obvious option odd. Assuming the OPs house is worth £700k and they buy for £500k they would be looking at about £25k in moving costs - and a lot of hassle to go with it.

Surely it’s best to do an absolute full review of finances to see where you can cut back first. Then second would be trying to obtain extra income - changing roles, picking up OT where possible, or a few hours casual work may make a big difference. Granted I realise ‘getting a new job’ or ‘more hours’ is easier to write than it is in practice, but seems more preferable than losing £25k by trading in a substantial asset for a lower one.

Thanks for replies. I probably left out some of the detail which would have been helpful to understand how we ended up here.

When we moved here we borrowed a bit extra and then we borrowed more again to fund some building work that needed to be done. But we were never maxed out according to the mortgage broker, we could have got more.

He was making our monthly payments as low as possible so he went up to 34 year term which was the maximum allowed. So I guess in that sense we have stretched ourselves.

We live in an expensive area of the south east. House is worth about £750k so we have a decent chunk of equity but houses round here seem to have stopped selling. I don’t know if we’d actually get 750k for it or not, I think we’re at risk of having made a loss once you factor in the building work.

If rates did go up to make our payments £2800 a month then I think we could afford to pay it but it would mean we couldn’t really save anything. When we fixed two years ago there was a lot more wiggle room in our budget with other costs like fuel and energy being lower. I also ended up having to reduce my hours slightly at work for reasons I won’t go into but that took about £350 a month off my salary. I could see if I could increase my hours again but that would mean spending more on childcare for my youngest who is not yet at school.

When I say couldn’t afford to save anything I mean that we could pay the bills, heat the house and put food in the fridge etc but then not have enough money to put anything away each month for an emergency

Agree to act now. Save and save and act as if the higher payments are already in place.

Not helpful to crow about over stretching without knowing circumstances. A 480 mortgage for a family of 5 in the SE might be what was needed to buy a small 3 bed terrace. Didn’t mean OP necessarily bought a five bed new build and a couple of Range Rovers.

I just wish we hadn’t moved from our old house where the mortgage would have been over a grand less per month 😭 but we wanted our youngest to have their own bedroom and to give us more space to be able to work from home.

When is your youngest due to start school? Do you get funded childcare hours?

Did you not work it out when you entered into the mortgage?

Okay, time to put your big girl pants on and do a proper budget. You’ll be able to find a lot of that £300 pm from some place if you’re not used to budgeting. And yes, time to up your hours again.

As others said, you can lock in rates in advance.

Not for another two years. Yes we do get funded hours and use the tax free childcare but due to working hours we use over the limit. Also have to pay for half terms which aren’t funded as well as holiday clubs for the older two.

Good that you looked now. You have nearly a year. Go see a broker and work on your options now. Moving will probably cost you more in the long run. Look at where savings can be made, can you get rid or downgrade a car? Any hobbies that could go for a while (gym/golf).

Its not fun and it will be hard but once all the kids are in school your outgoings will hopefully ease up a bit

Absolutely this, people borrowing such huge amounts on historically very very low interest rates may have overborrowed, OP certainly has unless there are other lifestyle issues which means they can cut elsewhere

You should always account for around 6% ish to see if you can afford.

So whatever you can do to start putting that £300 a month away now, either overpaying or in a higher earning interest account so you can put it against the mortgage when you come to remortgage.

people I know in your situation have taken a second job out, or got a better paid job, or drastically budgeted. To be honest at a £300 a month more, the cost of moving house is unlikely to make things loads easier by the time you’ve factored in all the fees.

We do already have a budget and I’m used to shopping around for deals on insurance and energy etc but everything is going up now down. DD for energy just went from 110 to 150. Council tax is now 350. Childcare also went up, holiday club is now £40 per child per day and that’s for the cheaper ones.

I will have to cut back on the non-direct debit spends.

Im sorry if this is unhelpful to you OP but Im saying this next bit to be helpful to others, this is why people over borrow and over extend. The 'nice to have' and the insistence of having this and that spare room for this and that is what leads people to insist they need a 4 or 5 bedder which they then cannot afford.

Children can share, it is not the end of the world. Work arrangements change over time, cabin or work room in the garden can be arranged for many properties.

Im sorry you're in this situation, if it were me I would sell and downsize, protect your income.

We were in your situation about 7 years ago.

Mortgage was £2700, we had school fees, nursery fees, debt, you name it we had it. The stress was unbelievable and even thinking about it today makes my chest tighten.

We had two kids under 5 and both of us were working full time. My mother then suddenly passed away and I was on my knees mentally.

So we took a deep breath and we sold the house and moved into rented to figure out where to go next. We sold it for exactly the same price we bought it for which was very lucky.

I remember the day we moved into the rented house, the sun was shining and the church bells were ringing. I just couldn't stop smiling and I felt like I could breath again. It was so liberating.

We ended up making a radical change to our lives. We move to Devon and renovated a small cottage and now live mortgage free. Kids go to local private school and the monthly bills are manageable. My husband works part time and I'm now a SAHM. We have a small amount of debt from the renovation, which is now a priority and will be wiped off next year. Plus we have a good investment portfolio now and a passive income stream as well.

We did a complete reset of our lives and we couldn't be happier.

When I used to look at big houses or large family homes, I used to view them as something I really wanted. Now when I walk past them or visit a friend's new place I'm mentally adding up the bills and think no way would I want to go down that route again!

You can get out of this situation. You need to sit down and come up with a plan on what to do. In your shoes, I would look to sell and get out from under the mortgage.

Good luck

Sell up and find somewhere more affordable. Unfortunately people have to start living within their means.

I’ve also just remembered that our car needs a major service in November which will cost about £1k. Meanwhile at work there is a pay freeze and talk of redundancies hence why I’m not sure if I will be able to increase my hours again.

Its not the 300 though is it, its the projected possible 800 that may come later as an increase, thats a lot.

If you could still afford it but not save, then that’s fine! Millions of people are like that!

It sounds like you’ve overstretched yourselves - personally I would find a more affordable house.

We bought 20 years ago when interest rates were 5%, and they peaked afterwards at 5.75, so I would not feel comfortable not being able to afford those rates.

How does a major service cost that much, mines about £150 (old car mind you)

I always think being pro-active helps a little with anxiety so see a broker and save as much as you can to build up your buffer. It was a mistake to have gone to the max of 34 years repayment because now you have nowhere to go.

I don’t know if downsizing is a feasible option given the fees involved and the market is terrible you may not sell at the price you need to. But it’s worth researching this now as well as other jobs you could do in case redundancy hits and things get worse. Supporting three kids and having no savings isn’t a position you want to get to.

One solution, which some people may disagree with, is to switch onto an interest only rate whilst you know your outgoings are higher than normal (e.g. due to childcare costs) and then every month, as much as it is possible to do so, save as much of the money that you can to fill the gap between your interest only mortgage and a full repayment mortgage. E.g. if your payments were going to be 3k on full repayment and interest only was 2.5k, try to save as much of that £500 as you can. Some months you may not be able to and some you may. If you can put them in an decent ISA you could potentially build up an accessible chunk of money to pay off a chunk of the mortgage after the next fixed term ends.
Or go interest only and make overpayments on the capital whenever you can to reduce it that way.
Final option is to decide how much value of the house you want to pay off (e.g. would you be happy to walk away at the end of the term with 2/3 of the value of your house paid off) and then take a full repayment mortgage on that part of the value of the property, and interest only on the remaining part (Barclays have a calculator for this).
None of these options are ideal but they will keep you in your home and give you some flexibility. You would have to be disciplined with whatever route you took, and plan on it only being a temporary measure whilst your outgoings are so high, rather than a permanent solution.