How small business owners and the self-employed can deal with the high cost of mortgages

How small business owners and the self-employed can deal with the high cost of mortgages
Dan Martin
Dan MartinDan Martin Content & Events

Posted: Thu 3rd Aug 2023

With the UK's soaring inflation, the Bank of England has responded by raising interest rates a record 14 successive times. The latest Monetary Policy Committee decision in August put the base rate at 5.25%, the highest since April 2008.

These decisions have led to increased mortgage repayments for many people and extra pressure on small business owners and self-employed individuals.

Although figures released on 20 July showed average mortgage rates had fallen for the first time in two months, mortgage rates are still high.

See below for tips on how to deal with high mortgage repayments while running a business or operating as a self-employed individual.

Work out your costs

If you're struggling with mortgage repayments, you should first work out how much you can afford to pay and work out where you can make savings. Consider all your personal costs and expenses.

There are various resources you can use to do this, including the following:

Reduce your business costs

Taking steps to reduce your business costs could free up funds to deal with increases in mortgage repayments and other expenses.

Work out what your business is spending its money on to highlight where you can make savings. Here are some examples of steps you can take:

  • Review your personal and business subscriptions and cancel those you no longer need or could do without.

  • Switch to more online meetings to save on travel costs.

  • If you do need to travel, book hotels, transport and other services earlier to get cheaper rates, or switch to lower-cost options such as buses instead of trains.

Read more:

Get support from the Mortgage Charter

Following meetings between the government and the UK's principal mortgage lenders, a new Mortgage Charter was agreed that outlines how people struggling with mortgage repayments are being supported.

All lenders have agreed the following:

  • Mortgage holders can contact their lender for help without any impact on their credit file.

  • Customers who are up to date with payments can switch to a new mortgage deal at the end of their existing fixed rate deal without another affordability check.

  • Lenders will provide well-timed information to help customers plan ahead should their current rate be due to end.

  • Tailored support for struggling customers will be provided. Examples include:

    • extending their term to reduce payments

    • a switch to interest-only payments

    • temporary payment deferral

    • part interest-part repayment

Signatories to the Charter have agreed:

  • A borrower will not have their home repossessed if less than 12 months has passed since their first missed payment.

  • Customers approaching the end of a fixed-rate deal will have the chance to lock in a deal up to six months ahead. They can also manage their new deal and request a better like-for-like deal with their lender right up until their new term starts, if one is available.

  • Customers who are up to date with payments can switch to interest-only payments for six months or extend their mortgage term to reduce their monthly payments and have the option to revert to their original term within six months.

It should be noted that switching to an interest-only mortgage means you will end up paying more interest overall.

In an Enterprise Nation webinar, David Waters, head of partnerships at mortgage broker CMME, said:

"Even if you are not coming to the end of your deal, it's still worth speaking to a broker to see if there are any better options available to you. They will take into account your personal situation and advise whether it's worth staying put or switching to a new deal."

The Support for Mortgage Interest scheme

Self-employed individuals or business owners who are claiming benefits may be able to get help through the government's Support for Mortgage Interest (SMI) scheme.

SMI provides help paying the interest on up to £200,000 of a loan or mortgage. It is delivered as a loan which must be repaid if you sell or transfer ownership of your home.

Get free debt advice

Speaking to a debt adviser can help you find ways to manage and deal with debt.

Money Helper, a free service provided by the Money and Pensions Service, has a guide to online, telephone and face-to-face debt advice services, which you can read at the Money Helper website.

Your options include:

Rent your property to someone else

One way to cover the cost of your mortgage repayments could be temporarily renting out your home and moving somewhere else that's cheaper. That could be by renting another property yourself or moving in with a friend, partner or relative.

Before renting out your home, you firstly need to decide whether it's worth your while. If it is, you are then legally required to get a 'consent to let' agreement from your mortgage lender.

There are various conditions you'll need to meet such as not being in arrears with mortgage repayments. Lenders may also impose other requirements such as having a certain level of equity in your home or holding your mortgage for a minimum amount of time.

Relevant resources

Dan Martin
Dan MartinDan Martin Content & Events
I'm a freelance journalist and event host who helps small businesses and the organisations that support them. I'm also Enterprise Nation's news reporter and Bristol Local Leader. I have 20 years of experience as a small business journalist having interviewed hundreds of entrepreneurs from famous names like Sir Richard Branson and Deborah Meaden to the founders behind brand new start-ups. I've worked for a range of leading small business publications and support groups, most recently as head of content at Enterprise Nation where I was responsible for the prolific output of content on the company's blog and social media. I now freelance for Enterprise Nation as the website's news reporter and as the host of the Small Business sessions podcast. I'm based in Bristol where I run and host regular events with the local small business community in my role as Enterprise Nation's Local Leader for Bristol. I also have strong connections with other major business organisations in the south west region. In total, I've hosted over 100 events including conferences with an audience of hundreds for international brands like Xero and Facebook and live web chats from inside 10 Downing Street. With my partner, I co-run Lifestyle District, a lifestyle blog focused on culture, art, theatre and photography.

You might also like…

Get business support right to your inbox

Subscribe to our newsletter to receive business tips, learn about new funding programmes, join upcoming events, take e-learning courses, and more.