Experts explain how to protect your money

LONDON — Mortgage rates are soaring in Britain, and many are now questioning whether they can still afford to pay their mortgage, while prospective first-time homeowners are considering putting off buying in the hopes of securing a better deal in the future.

“Anyone with a mortgage who needs to refinance faces a pretty startling rise in their monthly repayments,” Ed Monk, an associate director for personal investing at Fidelity International, told CNBC Make It.

And homeowners and would-be owners aren’t the only ones affected — renters, too, are feeling the impact in an already difficult rental market, Richard Donnell, executive director of research at Zoopla said.

“Rents are rising across the country and running ahead of the growth in earnings for some months now,” he told CNBC Make It.

“Demand is being stoked by a strong jobs market, record immigration and rising mortgage rates,” Donnell said.

Britain’s mortgage crisis has been brewing for months. Hundreds of mortgage deals were halted or changed last September as market turmoil took hold of the U.K. economy. This prompted concerns about higher base rates and how that could affect mortgages and their affordability going forward.  

Many mortgage products are directly linked to the U.K. central bank’s base rate — meaning that if the Bank of England hikes interest rates, mortgage costs shoot up for many borrowers.

Some mortgage products were pulled again last month after further concerns about how high interest rates could go. Earlier this month, British mortgage rates hit a 15-year high, and bodies including the Bank of England warned that there could be tough times ahead for the market.

Significant cost increases would be detrimental for many homeowners, putting pressure on household finances and leading to insolvency for potentially millions of households.

An imminent solution appears to be unlikely, but there are some options for homeowners that need to re-mortgage their home, experts say.

“A mortgage adviser with access to a wide range of mortgage products should be able to help you find the best deal,” Monk suggested.

What type of mortgage you choose is also key, he adds, noting that both fixed-rate and so-called tracker mortgages where the rate changes in line with central bank interest rate decisions are worth considering.

Nicholas Mendes, a technical mortgage manager at mortgage broker and advisor John Charcol, told CNBC Make It that there are pros and cons to both.

“The key benefit of a tracker mortgage are the flexibility and the ability to change to a new product without any early repayment charges,” he said.

However, it means there is uncertainty about how much monthly mortgage payments come to, and there is the risk of them rising, Mendes explained.

Other options available to mortgage holders are, for example, increasing the term of their mortgage to lower monthly payments, or switching to an interest-only mortgage, Mendes said.

“Those lucky enough to have significant savings or investments could consider using them to pay down some debt,” Monk added.

But some of these solutions like using savings or extending the mortgage term could even lead to further pain down the road despite being relieving in the short term, the experts said.

If your mortgage is due to expire soon, there are various steps you can take – ideally several months before it runs out, Mendes said. This includes staying with your current lender, at a different rate, switching lenders, or transferring your mortgage product, he explained.

One of the key reasons renters are getting caught up in the mortgage rate surge is that it is also increasing rental demand, said Oliver Knight, head of residential development research at real estate firm Knight Frank.

“The sharp increase in mortgage rates, and the knock-on impact that has had on affordability, make buying a home an impossibility for many in the short-term,” he told CNBC Make It.

“For the rental market that is fuelling a further increase in demand which comes against a backdrop of constrained supply.”

Urvish Patel and Barry Naisbitt, economists at the National Institute of Economic and Social Research, have also noticed this trend.

Prospective buyers may feel “trapped” in the rental market, which could deter them from trying to buy, they told CNBC Make It. This in turn increases demand for rental properties, which can then boost rents, they added.

Rising costs for landlords may also play a role, Donnell said. Higher mortgage rates are prompting some of those who still have mortgages to pay…