Rising mortgage costs: what can struggling homeowners do?

Mortgage pricing may have fallen as the Bank of England has paused interest rate hikes, but many homeowners are still struggling with repayments.

The Bank of England (BoE) raised interest rates to a 15-year high of 5.25% in August 2023 but it has frozen the cost of borrowing in its four most recent rate-setting meetings.

But with average mortgage pricing down from highs of 6% to around 5%, according to Moneyfacts data, interest rates on home loans are still high "compared to recent years", said MoneySavingExpert. This, coupled with the cost-of-living crisis "continuing to bite", means more homeowners are at risk of falling into mortgage arrears.

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Banking trade body UK Finance has seen the cost-of-living crisis and high interest rates "take their toll" on households and it recorded a 7% rise in the number of homeowner mortgages in arrears between the third and fourth quarter of 2023. Buy-to-let mortgages in arrears also rose by 18% during the quarter.

How bad will it get? 

British households are "among the most vulnerable in the world" to rising interest rates and higher government bond yields, according to The Times. This is because "more than 90% of borrowers are on relatively short fixed-term deals of between two and five years".

The BoE's latest Financial Stability Report suggests the average borrower coming to the end of their fixed rate will see their monthly mortgage repayments "increase by around £240" until the end of 2026 due to higher rates.

There are around 1.5 million fixed-rate deals ending in 2024, according to UK Finance, but it said the recent drop in mortgage rates will "ease the payment shock".

How can you secure the best remortgage deal?

Remortgaging has become "the new stockpicking", said Investors' Chronicle. As mortgage deals are getting cheaper, homeowners have a "harder time" deciding whether to lock in a rate now or wait for the chance of cheaper deals and risk paying more.

"Remortgaging requires effort on your part – even more so since the cost-of-living crisis began," said Kit Sproson on MoneySavingExpert. "But being proactive could generate a lot of savings in the long run."

Start the remortgaging process between three and six months before your fixed rate expires, he advised, to avoid automatically reverting to your lender's standard variable rate (SVR), which is immediately subject to BoE rate rises.

The first step is to "polish your credit report and learn how else to bolster your mortgage credentials". Then start looking for the best available rate, based on the maximum amount that you can borrow. This is based on a multiple of your salary and monthly outgoings, your property's up-to-date value and your loan-to-value ratio.

If you're rejected after applying, "don't automatically apply again with a different lender", Sproson said. "Too many applications will mess up your credit score." Instead, have another look at your credit report, to see if there is anything you might have missed. If your report is "still looking good", the lender "may have had its own reason for turning you down", so "it's worth asking" in order to identify other stumbling blocks.

MoneySavingExpert's Martin Lewis has issued a comprehensive 62-page guide with further tips on remortgaging that he says could help homeowners to save hundreds of pounds a month.

"Remember, it's not about the best deal out there – it's about the best deal for you," Lewis said.

What if you can't afford your mortgage payments?

Chancellor Jeremy Hunt has secured pledges from mortgage lenders to be more flexible with struggling borrowers in the current economic climate.

Most banks and building societies have signed up to a mortgage charter, agreeing that there will be a "minimum 12 month period before there's a repossession without consent".

Struggling borrowers will also be able to extend the term of their mortgage or switch to an interest-only agreement and move back to the original deal within six months with "no questions asked and no impact on your credit score".

Extending your mortgage term would mean "paying more in total", said the BBC. Another option if you have savings could be to overpay and reduce some of the amount borrowed.

Jim Akin, of credit bureau Experian, stressed the need to "take action quickly to minimise potential fees, penalties and damage to your credit".

The first step is to talk to your lender. They may agree to loan forbearance – reducing or suspending mortgage payments for an agreed period, usually up to 12 months.

For borrowers with a good credit rating, another option is refinancing – taking out a new mortgage with a lower monthly payment that will make your house payments more affordable. However, this process "can take weeks or even months, and you will likely have to pay (or finance) origination fees associated with the new loan", Akin warned.

If after exploring these options you are still unable to afford your repayments, renting out or selling your home may help to "contain the damage" and leave you "in the best position to start over", Akin concluded.

There are plenty of free debt advice services from charities such as Shelter, StepChange and National Debtline, said MoneyHelper, "if you're anxious about being unable to meet repayments".

Citizens Advice also has tips on what to do if you cannot afford your mortgage repayments, and recommends "getting independent financial advice" before making any mortgage decisions.