Mortgage rates hit 6%: why your brain is making this harder than it needs to be
Rates are climbing and your brain has a trick that makes the pressure worse. Here's what's actually happening.
So, mortgage rates just hit 6%
BBC News reports that the average interest rate on a new five-year fixed mortgage deal has hit 6% for the first time in three years. Moneyfacts, a financial information service, described the situation as “brutal” for borrowers. About 1,500 mortgage deals priced below 5% have vanished since the start of September, BBC News says. That’s not a small shift. That’s the ground moving under you.
And if you’re self-employed, you felt that news differently to someone on a salary. Because you know your income moves around. Some months are great. Some months are thin. And a fixed rising cost hitting you on top of that variable income? That’s a specific kind of pressure.
But here’s the thing. A lot of the pain isn’t just the number. Some of it is a brain trick called mental accounting.
What mental accounting actually is
Mental accounting is an idea from the economist Richard Thaler. The basic point is this: your brain doesn’t treat all money the same, even though, mathematically, it is the same.
Think of it like your brain has a load of separate pots. A business pot. A personal pot. A tax pot, maybe, if you’re good. A random pot for stuff you’re not sure where to put. Each pot feels separate. Each one has its own rules.
Here’s where it gets interesting. When your business has a good month, your brain books that money into the business pot. It feels like business money. So you spend it on kit, software, a course, whatever. Then your mortgage comes out of the personal pot, and that pot looks emptier than you’d like. So you feel behind. You feel stressed. You feel like there isn’t enough.
The trouble isn’t having pots. It’s that these pots only live in your head, with no real rules and no real numbers.
Why this lands hard for people like you
You know that feeling where you invoice a big client and feel genuinely flush, and then a week later you’re worried about the mortgage? That’s mental accounting doing its thing. The invoice money went into the business pot in your brain, and got treated like business money, and the mortgage lives somewhere else entirely.
The stress isn’t just about rates going up. It’s also that your brain is running a mental accounting system that wasn’t designed for variable income meeting fixed rising costs. The two things are crashing into each other and your brain has no clean way to reconcile them.
The numbers are fine, actually, when you look at them properly. But because the money is in different mental pots, it never feels fine. It feels chaotic. It feels like something is always wrong.
The ostrich effect makes it worse
There’s another one worth naming here. It’s called the ostrich effect. Karlsson, Loewenstein and Seppi named it in 2009, when they found investors checked their portfolios less often when markets fell. When financial information feels threatening, your brain wants to look away. You stop checking your account. You stop opening the renewal letter. You just kind of hope it resolves itself.
Which means the mortgage situation gets worse because you’re not engaging with it, not because you’re bad with money, but because your brain is trying to protect you from an uncomfortable feeling.
BBC News reports that Moneyfacts finance expert Rachel Springall said borrowers would be “wise to seek advice and compare deals carefully,” and noted some lenders could allow people to lock in a rate three to six months before their current deal ends. That’s a window. But you can only use it if you’re looking.
One small action this week
Here it is, and it’s really small. This week, write down every money pot you’re currently running in your head. Business account. Personal account. Tax savings. Client retainer you haven’t invoiced yet. Whatever. Just get them on paper.
Then next to each one, write the actual balance or rough amount.
That’s it. You’re not merging them, not changing anything, not making any decisions. You’re just making the invisible system visible. Because you can’t work with a system you can’t see.
When the pots are in your head, your brain fills in the gaps with anxiety. When they’re on paper, they’re just numbers. Numbers are workable.
For anything specific about your mortgage options or how to restructure your finances around a rate change, please talk to a qualified mortgage adviser or financial planner in your country. That’s where personal advice belongs, not here.
If the chaos runs deeper than one rate rise
If reading this and you thought, yeah, this is basically every month for me, then that’s worth paying attention to. The money chaos that a lot of self-employed people feel isn’t usually about the amount they earn. It’s about the mental accounting system running quietly in the background, keeping everything feeling unstable.
That’s exactly what we work through in The Money Story Method, my 12-week one-to-one programme. Or if you want to start smaller, my newsletter, The Thursday Money Note, goes into this kind of thing every week, no cost.
Either way, the first step is the same. Get it out of your head and onto paper. Right?
Source: BBC News
Joel