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Published 23 January 2024
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6 minutes

Four Tips for Savvy Homebuyers as Mortgage Fears Ease and Rates Drop

Mortgage rates are falling, but borrowers coming off five-year deals will still face higher bills. Here’s how you can adapt your finances to make a higher monthly mortgage payment, or taking on your first mortgage in 2024, easier.

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Homeowners remortgaging in 2024 have been bracing themselves for a sting, but with some of the best deals on the market dropping below 4%, the increase may not hurt as much as feared. 

Mortgage rates have been on the rise since December 2021 with variable rate mortgages peaking at a little over 8% in October 2023, sparking fears of a widespread crisis where millions of households would be left unable to afford their repayments. 

However, inflation has fallen substantially from its peak of more than 11% in October 2022 and it may mean the Bank of England will begin lowering the base rate this year, enabling cheaper borrowing. 

Since July 2023, some of the UK’s biggest mortgage lenders have been slowly reducing mortgage rates and in recent weeks we’ve seen some five-year fixed-rate deals as low as 3.94%. 

However, for those who locked in a cheaper deal during the pandemic, below 2% for some, their revised repayments may still be a stretch. The Resolution Foundation is predicting an annual increase of around £1,800, on average, for the 1.5 million homeowners who will be remortgaging in 2024. 

Sarah Tucker, a qualified mortgage broker and founder and managing director of The Mortgage Mum, told NerdWallet: “It’s a definite life-changing time for people with mortgages.” The average amount that a mortgage is going up by is about £300 to £400 a month (on the average house price at the average loan to value of 75%), she explained. 

“I don’t like to use the word ‘crisis’, but I can imagine in a household [already squeezed due to the cost of living], it feels like it if your rate’s coming to its end,” Tucker said.

A recent NerdWallet survey backs this up. It revealed that almost nine in 10 (89%) of those who have a mortgage or are considering a new mortgage product, are worried about their ability to afford repayments this year. Fortunately, there are steps mortgage deal hunters can take in 2024 to prepare their finances. 

» MORE: More cuts in mortgage rates predicted for 2024

Tip 1: Be honest about your spending

If you have concerns over your mortgage payments increasing, getting your finances in order before applying for a new mortgage starts with a thorough review of your spending.

“We have to go through [customers’] budgets and ask them: How much do you spend on Sky, Netflix, Prime? Is that a brand new car? How much of this is essential? How much can we reduce this by? Do you go to the gym enough to warrant what you pay for it?” Tucker said.

Some borrowers are already heeding this advice. Based on NerdWallet’s research, 42% of mortgage holders cut down on non-essential spending in 2023 to make their mortgage payments more manageable. 

If you’re unsure where to start, first categorise everything you spent in the past month into ‘wants’ (non-essentials such as a subscription to a video streaming service) and ‘needs’ (essentials such as food expenses, debt payments and energy bills). Whilst essentials and non-essentials vary between households, by identifying some of the non-essential ‘wants’ that you could live without, you’ll spot the areas of your household budget where there may be room to flex.

» MORE: Budgeting 101: how to budget money

Tip 2: Experiment with savings

Whether you’re a first-time buyer or an existing homeowner looking to move up the property ladder, you can use savings to “try on” a mortgage of the size you’re looking for and see how easy (or not) it is for you to live off your remaining income. 

For example, if your rent or current mortgage is £1,300 per month and you’re looking at a deal that will cost you £1,800, put £500 into an ISA or savings account on payday. Just remember to check the terms and conditions about withdrawing that money when you need it, so you don’t miss out on a chunk of any interest accrued.

For existing mortgage holders, it’s also worth doing some experimental maths to work out whether you’re better off overpaying your mortgage or saving that money into an account that will return a higher rate of interest. For most people, it makes sense to prioritise clearing debt (including a mortgage) before building up savings, but with interest rates of greater than 5% available on savings accounts, it may be worth doing the calculation or seeking professional guidance from a financial adviser.

Tip 3: Knowledge is power when it comes to trackers

Tracker mortgages follow the Bank of England base rate, which is subject to change every six weeks.

For anyone with a tracker mortgage that shot up in 2023, the feeling of not wanting to be burned a second time is understandable. But, depending on your circumstances, a tracker mortgage could mean you’ll stand to benefit from lower repayments if the base rate does drop, as many forecasters are predicting.

Bear in mind that for a tracker to leave you better off, any drop in the base rate will need to be equal to, or surpass, the savings you can make by opting for a fixed-rate deal. Neither of these outcomes is guaranteed and there’s always the risk that the base rate will start to rise again too.

NerdWallet’s research found that Gen Z appears to be the most likely group to bet on falling rates and choose a tracker mortgage. But it’s not just time that buyers in this bracket have on their side, it’s also access to information online.

Tucker agrees, saying “[Gen Z] feel researched enough to take that gamble. They also have a higher appetite for risk.”

“Gen Z are much more educated than we were,” Tucker added. “They are ahead of the game. … They are savvy and entrepreneurial.”

To take a leaf out of Gen Z’s book and stay plugged into what’s happening with UK mortgage rates, use a mortgage calculator to keep up to date on the latest deals so that you have a good idea of what’s out there before you talk to your bank or broker.

Tip 4: Speak up if you’re struggling

If you’ve gone through your household budget and still can’t bridge the gap between your current outgoings and what you’ll need to cover higher mortgage payments, you may want to speak to your lender or broker about your options. Remember that they are obligated to listen to your concerns and have a range of tools to support you.

“People are fearful of being too open and having [their broker] look at their bank statements and their spending,” Tucker said. “The best thing you can do is speak to the people who can actually make a difference and change something for you.”

Image source: Getty Images

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