Martin Lewis has issued an urgent warning to homeowners to do three key things amid concerns interest rates could soar in November.
Speaking on his ITV show - The Martin Lewis Money Show Live - on Thursday (21 October), the MoneySavingExpert explained how homeowners could end up paying more if interest rates rise.
Personal finance and money experts have predicted that the Bank of England will raise the so-called base rate from 0.1% to 0.25%.
This rate is what you pay for borrowing money, and what banks pay you for saving money with them.
If the base rate goes up, people with a tracker and variable rate mortgage - where your rates go up and down - could be set to pay more as they’d see their mortgage bills rise in line with interest rates.
It has been at 0.1% during the pandemic because of the expected economic downturn in the wake of the Covid-19 pandemic.
What did Martin Lewis say?
Martin Lewis explained that mortgage rates are currently at an all-time low, with the cheapest fixed deal being 0.84%.
This means those who can immediately lock into a fixed deal - where your rate is set for a period of time - may find they can avoid paying more.
Mr Lewis said: “UK interest rate rises are likely coming and coming soon, so this is a clarion call.
“Everyone with a mortgage, you need to check now if you’re on the best deal before it is too late.”
People may have until 4 November to make the switch as that is when the Bank of England will meet to decide where to increase the base rate.
What are the three key things people need to do?
First off, Mr Lewis told viewers to gather their current mortgage information so they would know what they’re comparing against.
This information includes: “Your rate, your type, when the deal ends, the terms and are there any switch penalties,” Mr Lewis said.
“The most important thing to understand is the loan to value; that is the proportion of your home’s current value that you borrow.
“The reason I’m stressing current [value] here, is because many people’s house price has gone up so they’re worth more.
“So, even if your borrowing hasn’t dropped, it means your loan to value may be lower which means you may be able to get a better mortgage.”
Can you stick with your existing lender?
Secondly, Mr Lewis said people should check out if their lender offers a product transfer - a mechanism that allows you to switch to another deal but carry on with the same provider.
If the lender does offer such a mechanism, Mr Lewis said homeowners should seek out the cheapest transfer deal.
He explained: “This used to be not a good rate but these days existing lenders can forgo affordability checks, which can help acceptance..
“They may have lower fees and obviously less paperwork.”
Finally, Mr Lewis told people to go to a mortgage comparison website to check out what the cheapest deals currently are on the market.
This action could save people money as it might be that another lender is offering a better rate.
But, Martin Lewis told viewers that they would need to factor in any fees that come attached with the deal in question.
He said: “Especially if you’re doing a smaller mortgage, fees are disproportionately affected.
“What I would do is, say you’ve got a two-year deal, divide the fee by 24 months and add that on to the mortgage to compare.
“As to whether you should fix or not, if certainty and being able to budget is important to you, the more you should fix.”
Other things to keep in mind
An additional tip Mr Lewis gave his audience was to check the practicalities of moving provider.
He said the key question was whether you would be accepted and pass all the relevant credit checks required by the new lender.
To do this, people will need to check their credit score - a means by which lenders can assess how risky it is to lend money to a particular person.
You can check your credit score for free online via three agencies: Equifax, Experian and TransUnion.
Lenders will also carry out what is known as a ‘stress test’ to see if a person can really afford their mortgage.
This is where providers look at your income and outgoings to determine the amount of mortgage you can afford to pay.