Recent mortgage interest rates have reached a peak not seen in the last 15 years.
So, what options are available to homeowners finding it hard to meet their mortgage repayments, and what assistance should they expect from their lenders?
Let’s break down the evolving landscape of mortgage types:
- Tracker mortgages fluctuate based on the Bank of England’s benchmark interest rate, which is reviewed eight times annually. This rate increased to 5.25% in August.
- Standard variable rates (SVRs) are adjusted according to the lender’s discretion. While they are influenced by the Bank of England’s rate, they are not directly tied to it.
- Fixed rate mortgages, which are preferred by around 75% of borrowers, lock in a rate for a specific duration, typically two or five years. After this term, borrowers either opt for refinancing or transition to an SVR.
With the increase in mortgage rates, those on tracker or variable agreements (about 1.6 million), are now facing heftier costs than just a year ago.
Furthermore, nearly 2.5 million homeowners will see their fixed-rate agreements end by the close of 2024, which might result in a noticeable hike in their monthly instalments.
The Future of Mortgage Rates: What’s on the Horizon?
Predicting the trajectory of mortgage rates remains a challenge, especially after the tumultuous shifts seen in the past year following a prolonged period of record lows.
Though some recent trends hint at potential decreases, the rates are undoubtedly still much higher than they were throughout 2021-2022. This can be attributed to wages and costs surging more extensively and longer than initially predicted, leading to the Bank of England consistently increasing the base rate to try to control inflation.
It’s worth noting the Bank’s cautionary stance, suggesting that from the close of this year (2023) until the end of 2026, over two million households could be looking at monthly increments ranging from £200 to £499 on new mortgage agreements. Additionally, around a million homeowners might experience a surge of at least £500 or more in their monthly costs in the upcoming couple of years as their fixed-rate deals come to an end.
However, declining house prices may help with future affordability, especially for first-time buyers.
Will applying for a new mortgage become challenging?
Various options may be available based on your situation when the time comes to apply for a new mortgage. The crucial issue is whether your household can handle increased repayments.
Thanks to a consensus among lenders, the Treasury, and regulatory bodies, homeowners can transition to a new fixed-rate mortgage without undergoing a new financial feasibility check once your existing agreement concludes, provided you’ve been consistent with your payments.
If you’re looking for a new mortgage, it is sensible to speak with a mortgage advisor, who will have access to the whole of the mortgage market and can discuss the best options for your needs.
How can I reduce costs when renewing my mortgaging?
If you’ve accumulated some savings, think about reducing your principal amount by making a larger payment and reducing your loan to value.
Another strategy is to allocate your savings to an associated offset account, which allows you to pay interest only on the remaining mortgage balance after subtracting your savings.
You may even consider extending your mortgage term, though this might lead to a higher overall payment.
Seeking advice from a mortgage advisor can be beneficial as we can introduce you to various alternatives.
What happens if I miss a mortgage payment?
Being behind on repayments for two months or more indicates you’re officially in arrears.
However, the Financial Conduct Authority (FCA), the body overseeing mortgage companies, states that lenders must act fairly towards their clients.
They advise borrowers to reach out to their lenders as soon as they foresee difficulties with their payments – the sooner, the better. Their trained staff must offer help.
What is my lender obliged to do?
Within 15 business days of a payment delay, lenders are required to:
- Detail the payments you’ve missed.
- Specify the outstanding mortgage amount.
- Provide information on any applicable fees.
Furthermore, lenders should be open to any reasonable request you make to resolve the arrears. Options might include changing the term of your mortgage to lessen your monthly payments or temporarily switching to interest-only payments.
It’s essential to note that if you skip payments or opt to pay a reduced amount, this will show on your credit record, potentially impacting your ability to borrow money in the future.
Is it possible to pause my mortgage payments?
A mortgage payment holiday allows borrowers to defer their repayments temporarily.
Depending on specific situations, some lenders might provide this facility, but likely not to individuals already behind on their payments.
It’s important to note that taking a payment break will show on your credit file.
Is my home at risk?
In certain situations, homeowners might choose to sell their homes. In more severe cases, a lender might resort to court action to repossess it.
However, home repossessions are much rarer than they used to be.
There are multiple steps before a lender can take repossession, and the entire procedure typically spans around two years.
If you’re concerned about the security of your home, it’s worth getting free, independent debt advice regarding your options.
Does the government offer any support?
While the government typically doesn’t intervene directly when homeowners face rising mortgage costs, many lenders adhere to the government’s mortgage charter. This charter ensures lenders clearly communicate the available options.
For those on qualifying benefits, the Support for Mortgage Interest program operates throughout the UK. Through this, the government helps with a portion of your mortgage interest via a loan, which accrues interest and must eventually be repaid.
Most borrowers settle this loan either upon selling their property or at the end of their life.
It’s essential to understand all the terms and criteria before signing up for this type of help.
The government-backed Moneyhelper website offers more detailed information.
If you’d like help or advice with your mortgage or protection products available, contact on of our friendly advisors who would be happy to have a chat today.