Five methods to reduce your mortgage costs.

Mortgage buyers are getting bad news concerning interest rates, as the Bank of England has now raised rates from 5% to 5.25%.

According to UK Finance, 1.6 million UK homeowners with fixed rates will have their agreement expire by December 2024, and these people would pay more when they refinance.

Additionally, another interest rate hike would probably result in an instant increase in the monthly payments for more than 1.4 million customers on tracker and variable rate packages.

Here are some suggestions for managing growing prices with the assistance of some of the top mortgage specialists in the UK.

If you can, pay more now

If you still have time left on a reasonably priced fixed-rate mortgage, you might want to make it more advantageous for you right now.

Most lenders would accept overpayments of up to 10% annually, but David Hollingworth of mortgage brokers London & Country advises keeping some money aside as a contingency fund because it won't be as convenient to access after being used to pay down the mortgage.

Savings can accumulate and produce interest, which can be used to pay off a portion of the mortgage before negotiating a new agreement.

Change to an interest-only mortgage

If you have an interest-only mortgage, it indicates that you are just making interest payments on the amount you have borrowed and not making any principal reductions.

According to Richard Dana, CEO of online mortgage broker Tembo, switching to an interest-only mortgage can help you maintain a manageable monthly payment schedule.

However, he cautions, "it's preferable to utilise this as a temporary fix, since otherwise, you will be required to pay your remaining mortgage sum at the conclusion of your mortgage term.

Your eligibility will be based on your income and the equity you have in the property.

Scale down

An expanding family or those who live in a small flat might not find this to be a viable alternative.

However, for senior mortgage customers whose children have left the nest, downsizing and purchasing a smaller home may be able to lower the size of the mortgage or perhaps eliminate it completely.

According to Rachel Springall of the financial data company Moneyfacts, "Consumers looking to re-mortgage may find it difficult to afford higher interest rates, so seeking independent advice is essential to consider every option available to them, such as downsizing."

Stretch the mortgage period

25 years is the standard mortgage length, although 30 and even 40-year durations are being offered.

According to David Hollingworth, extending the term can lower monthly payments but increase interest payments by tens of thousands of pounds over the course of the mortgage.

As your circumstances change, "make sure you regularly review whether you could cut the term back again."

Use your property to generate income

There are several ways to earn some extra money, like advertising your home on a short-term rental website like AirBnB, renting out your parking space through an app like Just Park, or taking in a lodger or international student.

You would receive a tax-free allowance of £7,500 per year under the government's rent-a-room programme for revenue derived from your primary residence as well, according to Richard Dana.

 

(Sources: bbc.co.uk, moneyfacts.co.uk)