Interest rates have been steadily climbing since the start of the year but it’s the last few weeks that have really unsettled homeowners, and the markets.

The catalyst was the mini Budget last month – in which the Chancellor Kwasi Kwarteng announced billions of pounds’ worth of unfinanced tax cuts – which saw the pound plunge to a record low against the dollar, revised forecasts of 6% interest rates and mortgage products withdrawn at pace.

It took the Bank of England to step in to buy bonds and Kwarteng’s U-turn on scrapping the additional 45p rate of income tax to quieten and stabilise the markets.

Citizen’s Advice: Huge spike in mortgage enquiries

In the meantime, households already facing the cost-of-living crisis rushed to escape their current mortgage deals to lock in a ‘cheaper’ fixed rate deal, despite being hit with Early Repayment Charges (ERC) worth thousands of pounds.

According to Citizens Advice Scotland, it saw a 25% increase in views to its webpage on what homeowners can do if they can’t pay their mortgage. Across all its advice pages relating to mortgage problems, there has been a 277% rise in page views in the year to August 2022.

But this data captures the trend before all the recent mortgage turmoil. CAS social justice spokesperson, Stephanie Millar, said: “The huge growth in concerns around mortgage payments predates the most recent increase in interest rates, and comes before a potential further increase.

“We have seen some action from policymakers but it is clear more targeted support will be needed for the most vulnerable, and hundreds of thousands of people will be looking at interest rate decisions in the coming months with dread.”

While Citizens Advice offers free, impartial and confidential advice, homeowners are also urged to speak to a mortgage adviser for help navigating the current climate.

Mortgage advice is key

Karen Barrett, CEO and founder of Unbiased – the platform connecting people with financial and mortgage advice – said it’s really important that people seek advice when applying for a mortgage, “particularly at the moment when affordability is being stretched due to the rising cost of living”.

She said while there’s a financial advice gap in the UK, this doesn’t apply to the mortgage market.

Around 8% of people take financial advice from a regulated adviser, while around 90% of mortgage applications involve a broker, Unbiased said.

“This is encouraging as using a broker will help to ensure that the mortgage deal chosen is the both suitable and affordable,” Barrett said.

She added people are facing big decisions with their mortgage either now or in the future and for most families, mortgage repayments are their biggest monthly expense.

“Choosing the right deal could save thousands of pounds. With interest rates predicted to continue rising over the coming months, it’s understandable that many will be considering ending their existing deal early and sucking up the ERC.

“But as everyone’s situation is unique, the importance of seeking advice here cannot be stressed enough. Some people may benefit from paying an ERC and switching to a new deal, whereas others may lose out. A mortgage adviser can help you arrive at the decision that’s right for you,” Barrett said.

She added: “We appreciate it may be difficult given things are changing so quickly, but it’s really important to avoid making any rash decisions. Taking your time to choose a suitable deal is better than rushing into an unsuitable one. But it’s equally important not to bury your head in the sand – now really is the time to take advice. Mortgage brokers often have access to a wider selection of deals, giving you a better chance of securing the product that’s right for you and your family.”