What should you do with your mortgage

As economies continue to improve, an increase in interest rates is now widely expected at some point in 2015. Higher rates will be welcomed by savers, who have had a lean time over the past few years. Having reached a recent peak of 5.75% in July 2007 for the UK, rates rapidly plummeted to an all-time low of 0.5% in March 2009, where they have remained ever since.

Conversely, higher interest rates spell bad news for borrowers. A rate increase will drive up monthly repayments for those mortgage holders who do not have a fixed mortgage rate and, while those who have fixed their mortgages will not feel the initial impact of a rate rise, when their fixed period comes to an end, remortgaging is likely to result in a sizeable increase in monthly repayments.

Anybody taking out a mortgage should always assess not only whether they can afford their repayments now, but also whether they would be able to afford them in an environment of higher interest rates. A rate rise is now seen as a foregone conclusion and, although rates are not expected to rise as far or as quickly as before the financial crisis, even a relatively small increase could have a relatively substantial effect on your monthly repayments.

According to a recent survey published by mortgage lender Halifax, two- fifths (41%) of mortgage holders are worried about the prospect of higher interest rates, with 13% concerned they might find themselves unable to meet their repayments if they were to rise by up to £50 a month. Meanwhile, if their monthly mortgage payments rose by as much as £100, 30% of mortgage holders fear they will have to cut spending on essential items such as food, energy and insurance.

If the terms of your mortgage allow, it may be worth considering overpaying on your mortgage while rates remain low. It may also be worth negotiating a new mortgage now – perhaps moving from a standard variable rate to a fixed rate. That said, mortgage lenders are already poised to implement a rate increase once it takes effect and are therefore likely to take account of this when offering another deal.

Make sure you check the terms of your current deal – you could incur penalties from your current lender if you switch to a new one – and, above all, do take expert advice.