categorySprive Academy

Mortgage market turmoil

This last week the mortgage market has gone crazy. Many of our customers have questions about what is happening and what it means for you. Do not worry, Sprive is here to help. Here are answers to the most common questions we’ve been getting from our users.

How does the recent ‘mini-budget’ impact mortgages?

The government has announced the biggest tax cuts in 50 years. There are concerns from the markets that this will cause inflation to rise (the price of everyday goods to become more expensive), which has become even more likely with the pound dropping significantly in value. In response to this, it is likely the Bank of England is going to raise interest rates more aggressively and to a higher rate than previously anticipated.

For homeowners with mortgages, this, unfortunately, means that when you next switch mortgage you’ll be paying your lender more interest and your fixed monthly payments will almost certainly go up.

Below is a visual to help illustrate the impact on monthly fixed mortgage payments.

So if you're borrowing £300k at 6%, for 25 years then you could see your monthly payments increase by £661. This number increases to £882 if you had a £400k mortgage payable at a rate of 6%.

Sprive monthly payments interest rise

It’s also expected that a significant increase in interest rates will result in more people being unable to afford their existing mortgage and many will find it more difficult to find new deals when it’s time for them to re-mortgage. Economists also expect that house prices could drop by 10% next year as a result of fewer people being able to buy new homes.

Why are lenders pulling mortgage deals?

You may have heard that mortgage deals are being pulled by many banks and building societies. This is basically because they need to make sure their mortgage products are profitable and to make sure new customers can afford the mortgage in lieu of interest rates expected to rise.

The ‘mini budget’ has also caused the cost of long-term borrowing to go up, which will have the effect of increasing the cost of offering new deals and also reducing the size of loans that lenders can offer.

Whilst there are a reduced number of deals in the market, it is still possible to remortgage. You can see the latest deals within the Sprive app and you can book an appointment to speak to an expert at no cost to you.

What can you do to help save money on your mortgage?

Whilst you can’t control interest rates, there are a couple of things you can do to help you save money. The first is making overpayments and the other is making sure you’re on the best deal. The good news is that Sprive can help you on both fronts.

Let’s start by looking at switching mortgage. You’ll likely find yourself in one of the following situations.

Your deal is expiring within the next 6 months

Interest rates are expected to move quickly. The longer you wait, the higher the interest rate you’ll likely find yourself paying when you switch to a new deal. Within the Sprive app, you can see mortgage deals personalised to you and you can book an appointment with a trusted independent advisor to help you secure the best deal as quickly as possible.

You’re within your deal period and you’re not eligible to switch yet

Here you have two options. Wait until you’re eligible to switch or exit your deal early and pay early repayment charges and lock in an available rate in the market. With either option, Sprive can help. If you’ve correctly told us when your deal expires, we will let you know via push notification when it’s time for you to switch. You can have a look at personalised deals within the app and then talk to an expert by booking an appointment via the app who will help you get the best deal for you.

If you’re thinking about exiting early, again you can book an appointment with an expert who can walk you through the implications of doing so. Ahead of the call, make sure you have looked at your mortgage offer document so you can tell the expert what your ERC penalty as of now is. It’s also important to have your own view on what you think will happen to interest rates at the time you can switch. Armed with this information, an expert advisor can help you decide whether you want to exit early and pay the ERC fee now or simply wait.

Should I make overpayments in light of rising rates?

The priority has to be to make sure you can afford your fixed monthly payments and fund your day-to-day expenses. If you can afford to put even just a little bit of extra money towards the mortgage then with rising rates you’ll save even more money in the future. With our auto-saving feature, we make this simple and the great thing is you have complete control.

The higher the interest rate you pay, the higher the return on the extra money you put toward your mortgage.

With Sprive, we’re working on adding new features like ‘Shop with Sprive’ which gives you extra money every time to shop with brands like Morrisons, Waitrose, M&S, John Lewis, Costa, Deliveroo, Uber Eats, Just Eat, and many more. Just £25 extra a month towards the mortgage just by doing your everyday shopping can make a huge difference.

If there are questions that you would like more guidance or information on, please do not hesitate to reach out to us via hello@sprive.com.