'My mortgage is set to skyrocket - what should I do?' 5 potential solutions from a money expert

Soaring monthly mortgage payments are putting household budgets under severe strain. This is down to high mortgage rates, that are a knock-on effect of rising inflation. Between July 2021 and 2023 the average two-year fixed rate mortgage has risen from 2.58% to 6.70%, Moneyfacts data shows. 

And with forecasts suggesting interest rates could remain high, around one million mortgage borrowers will face a rise of £500 or more per month by the end of 2026, according to the Bank of England.

The situation for borrowers is so grave that Chancellor Jeremy Hunt held crisis talks with money expert Martin Lewis to thrash out ways to help homeowners manage the spiralling cost of mortgage debt.

The Chancellor ruled out financial help in the form of mortgage interest relief for borrowers, stating it would worsen inflation, currently at 8.7%. Instead, after meeting with the UK’s main banks, many lenders have agreed to adhere to a set of measures, known as the mortgage charter, to help struggling borrowers or those facing a steep increase in payments.

These include:

• Not pursuing repossession within 12 months of the first payment.
• Offering borrowers the chance to lock into a new mortgage deal six months before their fixed rate expires and the flexibility to switch to a cheaper option up until their deal expires.
• Switching customers to interest-only mortgages or extending their mortgage and allowing them to switch back to their original terms within six months.
• Permitting borrowers who are up-to-date with payments to switch to a new mortgage deal at their end of their fixed rate without another affordability check.

If your repayments are set to soar, there is support for struggling borrowers and steps you can take to help ease the pressure on your personal finances.

1. Speak to a mortgage broker if your repayments are rising

Ask an independent mortgage broker to review your mortgage deal and financial circumstances to make sure you’re on the most suitable interest rate. Choose a broker who has access to all mortgage deals on the market. 

Rachel Lummis, mortgage adviser at Xpressmortgages, said: ‘The most suitable deal and length of the product term depends on the borrower’s individual needs and attitude to risk. Some homeowners may be brave enough to choose a tracker mortgage, a variable rate mortgage that rises and falls in step with the Bank of England base rate. Others may prefer to lock into a two-year rate rather than a five-year deal hoping that rates will be better in two years.’ 

'It’s impossible to know where interest rates will be in the future but by speaking to adviser you can make sure you’re on the best deal today.’

2. Be prepared to shop around for a better mortgage deal

Mortgage lenders sometimes offer loyalty rates to their customers for staying with them when it’s time to remortgage. While these rates may be slightly cheaper than those available to new borrowers, your loyalty rate may be higher than another bank’s best rates. For example, at the time of writing, Santander is offering a rate of 6.14% fixed for two years for new customers with a 25% deposit and a rate of 5.94% to existing borrowers. Halifax’s equivalent deal for new customers is cheaper, at 5.85%.

The advantage of sticking with your current bank, however, is that it will not run a new credit or affordability checks on you as long as you are not altering the size or term of your mortgage.

You can check out our guide to the best remortgage deals or use a price comparison site, like our sister brand Go.Compare, to find the best deal for your circumstances.

3. Speak to your current lender if you are struggling to repay your mortgage

While the mortgage charter measures encourage lenders to support their customers, it’s up to you to ask for help. Don’t wait until you can’t afford the payment, call the bank and make arrangements that will allow you to keep on top of your commitments.  

4. Consider a short-term lifestyle change to help afford your mortgage payments

Sarah Coles, head of personal finance for wealth Hargreaves Lansdown, says: ‘At this stage in the cost-of-living crisis, it’s difficult to find any costs left to cut. Any significant savings are likely to involve real lifestyle changes. 

‘It’s not something anyone relishes, which is one reason why so many people have eaten into savings built up during the pandemic instead. However, it’s worth bearing in mind that higher rates won’t last forever. If you decide to forgo your summer holiday or reconsider car ownership, don’t think this is something you have to live with for the rest of your life – it’s a temporary stop gap.’ 

5. Look for ways to boost your income

Boosting your income by making money from your home can help make ends meet. You may be able to make your home work for you by taking in a lodger. You may find someone looking for a place to live during the working week or even consider advertising your spare room on a website such as Airbnb. By renting out a furnished room in your house you can qualify for the Rent-a -Room tax break, which means the first £7,500 you make this way will be free of tax.

Sarah Coles adds: ‘You can also consider anything from offering your driveway as cheap parking, to providing storage space in your attic or garage. There are websites that help you share your home in a less intrusive way. The first £1,000 you make is tax-free.’