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?

Interest only is kicking the can down the road and refusing to see whats in front of you. OP cannot afford this house and the expectations she seems to have for other items.

I understand op based on my calculations ours will go up by £200 which will be £2000 and it already feels alot but with the cost of everything else rising it is hard.

Whats your Loan to value? Ours is close to 60% loan now and this helps with rates available.
Moving isnt always a solution. Stamp duty legal fees estate agents fees removal/storage and then what will you get now for the money?

It’s too unpredictable at the moment. There’s no point worrying about what rates will be a year away.

Hopefully you will have wriggle room in the non-DD spends to achieve this, which could be the case as many people spend a lot on this sort of thing, don't realise how much it costs and don't think it's unusual or something to consider cutting back on.

Food and drink out of the house is a good example, could be hundreds of pounds a month. Plus groceries, I know food has gone up, but some Mumsnetters spend way above the national average and don't think their diet of salmon and daily blueberries is something they could cut back on.

Also days out, do you look for deals and have annual memberships that often pay for themselves in 2/3 visits or do you just walk up to the gate and pay? Do you spend on grooming, hair colouring, treatments etc? What about DC activities? What does your DH spend? Make sure that if you do cut back, it's a whole family activity. Don't fall into the trap of him carrying on as normal while you scrabble around taking packed lunches and making family meals out of lentils and cabbage.

If you're currently quite spendy, do a budget and post it on here, or for an even more brutal reception, on Money Saving Expert, which has a far less affluent demographic, so people don't think £1000+ monthly grocery bills are just normal basic essentials.

I don't think it is a good move to stick your head in the sand. The global economic situation is not going to suddenly rectify itself. It's going to get rough over the next few years.

Better to have a plan than just hope for the best and be unprepared.

Maybe OP already knows it needs a lot of work?
In any case, worrying about servicing the car when they clearly have a large income indicates poor money management.

There's different levels of service. As well as the standard major service, you sometimes need to add on brake fluid changes and belt changes. When mine needs a belt change, it's about £500 and that's a very small cheap car at an independent garage, that wouldn't be suitable for a family, so I could easily see how it could cost twice that for a larger car, at a main dealer, more expensive brand etc. Plus people often get other necessary work done at the same time as a service (brakes, tyres etc).

I know MN likes to think that you can run a £600 car for years and only ever need tyres and an oil change while they 'sail through their MOT' but that's not the reality for many.

But I agree that for a family with a decent income, which they must have to qualify for a large mortgage, they should be able to put aside money for annual and irregular expenses like car repairs so it's not a panic when they arise.

It has nothing to do with sticking your head in the sand or expecting the situation to suddenly rectifying itself. It has everything to do with knowing that it’s incredibly unpredictable and not wasting thousands and thousand of pounds on a house move before she can even lock in a new mortgage rate later in the new year. Jumping the gun with that sort of money out of panic before you can actually see your options is poor decision making.

Sorry I’m not sure where I have said anything about expectations I have for other items? I already don’t get my hair or nails done, but secondhand clothes, don’t go on expensive holidays (camping), we don’t have car finance. I’m not on the breadline by any means and we are lucky that we can probably find a way to manage. But we are both on good wages.

interest only probably wouldn’t be a great idea and I take the point. Unfortunately when our youngest starts school childcare costs probably won’t really change as that will be another one to pay for at holiday club. It may drop a little. So if we can’t afford capital repayment now then we won’t be able to in a couple of years either.

How old are you both op?

If you don't already have income protection insurance that needs to be added to your budget. It sounds like if you or DH lost your job or were unable to work you have no significant savings to fall back on.

Yes it’s a belt change. We don’t have an expensive brand of car but it’s bigger as we have 3 kids who were all in car seats so we needed three isofix. With the MOT as well as regular service things like oil it’s nearly 1k from the local garage (not dealership).

i didn’t mean to suggest that we can’t afford this now, we can as we knew it was coming, but it’s stuff like that would become a struggle if our mortgage went up to nearly 3k per month.

We are both 37. DH does have income protection insurance fortunately. We don’t have significant savings because of our house move and building work, like I say I wish we had stayed put!

we wanted our youngest to have their own bedroom and to give us more space to be able to work from home.

Do you need to work from home, or could some of that space be used for a lodger?
Sounds like some of your kids could share rooms & then you could get a lodger in a free bedroom.
If you posted all your outgoings, people would make suggestions about ways you could cut the bills.
Sometimes people get 2nd jobs.

I don’t think people are being very helpful to you OP. Yes it’s scary but all you have said is that you will not be able to save any money. Plenty of people live like this - it’s not fun but they manage. I would keep your house and ride it out.

In the meantime, start overpaying by that £300 a month so you practice living on less and you also owe less when you come to remortgage.

Remember a lot can change in a year - they rocketed up in 2023 but they came down again and they may well do again. There is no interest in the government allowing interest rates to soar to 8%. They will not want all the repossessions of the noughties to happen again. It’s all very well and good people saying that buyers were stupid and overstretched but that’s not reality - people buy what they can afford at the time.

And next time fix at 5 years. You may lose out on rates going down but you have the peace of mind of knowing it won’t change for a long time - and a lot really does change in 5 years.

FWIW I’m about to take out a large mortgage (£1800/month). It’s £100k less than our maximum borrowing so not overstretching really. I’ve factored in pay rises at work and the fact we won’t have childcare to pay for then, and stress tested myself to 8%. Someone could come along and say well I should have stress tested to 15% but you can’t live your life like that. For me it is short term pain for long term gain.

Well I meant things like the holiday clubs and servicing of the car but perhaps like others say, you know it needs work or something?

Actually it is really.

They cannot afford the house. That is the simple truth. So waiting to lock themselves into an even more expensive new deal is a poor money management choice. Like beating your head against a wall and wondering why it hurts so much.

Better to take the head out of the sand and look at what they actually can afford and plan accordingly, than chasing an asset they cannot afford to hold on to.

A solid realistic plan to make the necessary changes to afford your life is not panic. It's facing up to reality and making sensible choices.

No judgement from me, it sounds really tricky. I only ask to see if you would be able to extend your term any more just while you’re in the thick of it with childcare still, that doesn’t mean paying it off at 75, you could over pay or sell long before then, but to make things manageable during the most difficult period. I notice you said you couldn’t go higher than 34 years last time, could you look for a lender that would let you go to 75? (I believe some do 75)

It sounds like you’re living beyond your means and high ltv for a mortgage that high. Moving costs are expensive but might be better long term to live in a cheaper house.

Holiday clubs are school holiday childcare. They are not expensive extra curricular activities, they are where we have to send our children in the holidays so we can work.

I think the bit I’d be really careful about is assuming the Government simply won’t let mortgage rates get that high because too many people would struggle.

The Government doesn’t actually set interest rates, the Bank of England does. And if inflation meant rates needed to stay high, I really don’t think mortgage holders would be protected from that in the way people sometimes assume.

What the Government is much more likely to do is try to stop people losing their homes immediately, things like giving lenders more flexibility, allowing people to extend their mortgage term, temporarily go interest-only or giving people longer to sort things out.

But that isn’t the same as making the mortgage affordable again.

They’re not going to step in and pay the difference because somebody’s mortgage has gone from £1,200 a month to £2,000 a month, and they’re not going to guarantee that rates can never reach 7% or 8%.

That’s the important distinction for me.
You might be given breathing space, but ultimately you still have to be able to afford the mortgage.

And I do think things are different now compared with the financial crisis. There is far more expectation that borrowers and lenders deal with affordability problems between themselves first, rather than the Government effectively protecting homeowners from higher borrowing costs.

Obviously nobody can predict where rates will be in a year and they could absolutely come down. But I personally wouldn’t keep a mortgage I was worried about on the basis of “the Government won’t let rates get that high.”

I’d make the decision on the basis of whether I could realistically cope if they did.

I agree but as we all know this a terrible time for the property market and OP says houses aren’t selling in her area. So unlike in your situation it’s going to be difficult to sell up and downsize, if not impossible.

I understand that, but there are cheaper versions or more expensive versions, only you know what you're using. Are you tag teaming your AL so that one of you at least is at home for half the holidays, it means less holiday time together but is cheaper

Ultimately my advice is to downsize and reduce your mortgage but if you dont want to do that, then you'll have to take on board other ideas. Money is only going to stretch so far

I'd suggest making regular overpayments on the mortgage now.

Even very small overpayments can add up quite quickly as they are only used to pay capital, not interest. That might be enough to push you into the next LTV bracket with lower rates. If not, at least you'll have got used to making slightly higher payments now so that when they do increase it won't seem as dramatic.

What the Government is much more likely to do is try to stop people losing their homes immediately, things like giving lenders more flexibility, allowing people to extend their mortgage term, temporarily go interest-only or giving people longer to sort things out.

This already happens.