Switch mortgages to help against rising living costs

There are several reasons why the cost of living is expected to increase over the immediate future, with many of us already feeling the pinch at the supermarket checkout. The rate of inflation could reach as high as 6% later in 2022, which will significantly affect many household expenses and some people’s mortgage repayments.

Another reason the cost of living will increase this year is due to a new energy price cap which will come into effect from April 2022. The cap is what energy companies are allowed to charge at most. On average, projected energy price increases will cost the average household around £600 per year. And due to the new Health and Social Care Fund created by the government, workers will contribute more in National Insurance payments going forward.

These additional expenses may be offset by choosing a better mortgage deal. If you already have a mortgage, you may want to consider switching your deal for a better (and fixed) interest rate.

Remortgaging to combat living cost rise

Remortgaging is when you swap your current mortgage deal for a different one. This may be with the same lender that provided your initial mortgage, or it could be for a new mortgage with a different lender. The reason people remortgage is usually to secure a better deal with a lower interest rate for long-term savings. Another reason to remortgage is to borrow more against your home equity.

Now could be an optimal time to remortgage your current deal to get a better one, and combat against rising household expenses due to the reasons mentioned earlier, especially the projected rise in inflation. The savings you make from switching mortgage could counter any rising energy prices – and potentially much more.

In fact, some industry experts are suggesting that switching from a variable rate mortgage to a fixed-rate mortgage could save homeowners around £2,200 each year.

A variable rate mortgage changes the interest rate based on external economic factors, such as the Bank of England (BoE) base rate, which is influenced by the inflation rate. On the other hand, a fixed-rate mortgage guarantees a fixed interest rate over a set period and can be used to lock in a rate before variable-rate mortgages become more expensive.

Keep in mind additional costs

If you do explore the possibility of switching your mortgage to save money over the following months and years, you will need to keep in mind the additional costs of remortgaging.

First of all, early repayment charges could be applied when you remortgage because you are essentially paying off your original mortgage earlier than agreed. You might be able to avoid these charges if you are remortgaging with the same lender. There will also be fees to set up your new mortgage. Nevertheless, there can still be long-term savings made!

March 2022