Martin Lewis explains how new mortgage support could save people money

Martin Lewis has issued a dire warning as mortgage rates hit an eye-watering high of 6.66% – but said homeowners still have a few tricks up their sleeves.

Homeowners are facing difficult decisions and may continue to as experts say the base interest rate of 5% could rise to as much as 7% and only cool off next year.

Mortgage rates have soared since then prime minister Liz Truss and chancellor Kwasi Kwarteng’s tax cuts and spending plans cratered the economy.

The rate, which determines monthly mortgage payments, reached a 15-year high on Monday with a typical two-year deal swelling to 6.66%.

This is the highest level since the 2008 financial crash and well above the 6.51% peak of October 2022.

Moneysavingexpert.com founder Martin hosted a special edition of the Martin Lewis Money Show Live yesterday evening.

Homeowners do have a fair few options when it comes to temporary help, he stressed.

The first is to extend the mortgage term, such as from 15 years to 20 years, to reduce monthly payments in the short term.

Or they could switch to interest only to stop paying the original capital they borrow and only pay for the interest.

‘They will both bring your payments down and give you a break, especially if you’ve just gone onto a higher fix. It will give you a few months to sort your finances out,’ he said.

‘You will have to pay back the amount missing and the interest after so future repayments after this will be higher.’

The Government also offer Support for Mortgage Interest (SMI), paid out as a loan to cover 2.65% of someone’s interest, for people on benefits.

Lenders can also offer borrowers payment reductions, permanent extensions and more for those in serious trouble. Thought they could dent credit scores.

‘I know many of you don’t trust our banks or your lenders and I’ve been partly responsible for that because they haven’t been trustworthy at times, but please speak to your lender if you are in trouble,’ Martin said.

‘Don’t hide it from them, that’s a mistake.’

From August, the Government, the Financial Conduct Authority and most banks should offer more temporary options to help people ‘get over the hump’ for about six months.

Though, afterwards, the payments may increase slightly depending on how long left of the deal they have, so they should do an affordability check before.

‘This help will be available with just a click on the website. If you’re not sure about it, I would get advice first,’ Martin said.

‘You can do it without affordability checks, and it won’t go on your credit file. These were my two main suggestions so people wouldn’t be scared to get help.’

Martin also told viewers how to check for the best rates.

‘Find out the rate, the type, when your fix ends, if it’s a fix. The term, how long your mortgage will last, any early exit penalties for clearing it,’ he said.

‘Most importantly for everybody out there, you need to know you’ll move to the standard variable rate.’

A standard variable rate (SVR) sees the interest rate set by the lender, such as a bank rather than the Bank of England. The typical SVR is 8%,

‘You don’t want to be on an SVR,’ cautioned Martin.

‘If you possibly can, you want to get off that, so you need to know when you’re going to be moved to that.’

Once a homeowner knows all the ins and outs of their mortgage deal, then it’s time to shop for other payment plans.

Martin said: ‘The first thing you want to be looking at is – different to what I would have said five years ago – is check your existing lender’s product transfers.

‘This is where you get a new deal from the same lender. It used to be a poor route, it used to be expensive, but lately, they’ve offered competitive deals.

‘It can mean less paperwork, fewer fees and they don’t have to do affordability checks on existing customers. Once you know – you’ve got your benchmark – this is what my current lender can offer me – what’s the best on the market?’

Martin recommended using a comparison site to find this out, though switching fees and how many years they’re spread out for must be considered.

‘Especially important for smaller mortgages where the fees have a disproportionate impact,’ Martin said.

Speaking on Good Morning Britain earlier that morning, Martin warned against people hoping mortgage interest rates will fall down anytime soon.

‘I think that’s a dangerous thing to say,’ he told hosts Susanna Reid and Ed Balls.

‘What’s tough for anybody under the age of 35 to understand is the last 15-odd years from 2007 onwards of super low-interest rates is the anomaly.

‘If you look in a historic context, the rates we have now is the norm roughly for the prior 300 years. We’ve now had a 15-year anomaly so there is no guarantee that interest rates will drop down to those super-low levels.

‘That is not the same as me saying they won’t but you can’t say they must.’

Homeowners’ best bet is to decide their mortgage rate after having an honest look at their finances.

‘If there is a fix out there that you can afford and it gives you surety that you know exactly what you want to pay and that surety is most important to you than fix,’ he said.

‘If you’ve got room to pay the variable rates for a few months then you may want to do that but there is a risk things can get more expensive.’

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