Martin Lewis has shared three key rules for the millions of homeowners with cheap fixed rate mortgages coming to an end this year.
The Money Saving Expert founder took to his Money Show tonight to discuss mortgages, house prices, rents and interest rates, and worried audience members had questions regarding their current deals.
To help, Mr Lewis explained the actions homeowners should take “right now” to secure the best possible deal when they need to.
Mr Lewis said: “1.5 million cheap fixes end in 2024 – a huge number of people – and you need to start prepping for it right now.”
Sharing his first rule, the financial journalist said: “The first thing is, you are going to pay more. Invariably you were on a cheaper rate before – substantially cheaper. You’re going to be paying a lot more, so I’d be getting on a mortgage calculator right now if you’re a long time away.
“Around five percent is what you’re going to pay. Four percent or five percent. And then let’s say you’re coming off two percent – a cheap fix – which is what many people were on.
“You’re going to pay roughly £150 more a month per £100,000 of outstanding mortgage. So if you’ve got a £200,000 mortgage, that would be £300 a month more. That’s just the scale of magnitude of the amount that you’re going to pay more and you need to prepare your budget to do exactly that.”
The second rule Mr Lewis suggested was diarising six months before the fix ends to start looking for a new deal.
Mr Lewis then pointed out a key rule within the mortgage charter, which was introduced last year by the Government to help households when interest rates were at record-breaking highs.
He explained: “There was the rule that your lender should offer you product transfers – new deal, same lender – up to six months before your fix ends, which most of them now do. Usually with these, there are no fees to lock in, or maybe small fees, so you can almost see it as an insurance policy.
“You could say ‘I’m going to get this deal as long as I can get out of it. If things go cheaper, I’ve locked this rate in now in case things go worse, and if I get something cheaper, great, I’ll just let go of it.”
He continued: “I want you to check if you lock in now, what would it cost you if you then move? If interest rates drop half a percent and you want to go somewhere else, what would it cost you?
“Normally you can do it without fees or anything. So if rates fall, you can actually ditch it penalty-free.”
Moving onto his third rule, Mr Lewis said: “My third rule for this is put any spare cash you have aside now to reduce your future mortgage.
“If you’ve got an expensive mortgage, lower the amount on the mortgage. But if you’re on a cheap mortgage now, you can earn more in savings. So use a top savings account. The top easy access account is over five percent. Top fixes are over five percent.
“If you’re a year or two away, you could put money in a fixed rate to get the maximum possible for over a year. Save that. Don’t overpay the mortgage. But then, when the mortgage fix ends, use your savings to reduce your mortgage debt, because you’re going to have a bigger mortgage debt. It might help you loan to value and ratio as well.”
However, Mr Lewis noted the importance of keeping a rainy day fund to help with unexpected expenses. He said: “The only thing I would say is to keep three to six months worth of bills set aside in case of emergency.
“Keep some liquid cash, because if you pay more off your mortgage and then you have a problem, they’re not going to say ‘It’s fine, you paid more before, we don’t want extra money’ – no, they want your money. So keep money aside for that.”
The Martin Lewis Money Show airs every Tuesday at 8pm on ITV and ITVX.
