Mortgage developments in 2023
Earlier today I read the blogs which I posted in February and March this year and realised the significant changes which have taken place in the intervening four months. Here is an update of developments since that time and one or two tips for those with mortgages who are facing significantly increased monthly payments, especially those who may face hardship.
First of all the numbers. As I write (13 July) bank base rate stands at 5% and commentators suggest that it might go as high as 6% with some even suggesting that it will continue to rise until it reaches 7%. Apparently, only 28% of homeowners have a mortgage. Of the remaining 72% (mostly older customers, I am sure) many will have savings and an increase in interest rates will be good news for them after years of very low returns. However, with inflation at over 8% and savings rates at between 4% and 5%, their money is still not keeping pace with inflation.
In the rest of this blog, I want to focus on the 28% and especially those who are facing increased payments in the near future. My blog from March provides a guide about actions borrowers can take, often well in advance of their current deal ending, to make sure that an inevitably painful process is as smooth as possible.
For many borrowers facing rate rises there will have to be some belt-tightening with less being available to spend on discretionary items. For others, though, there will be real hardship and it is especially important that such borrowers are proactive and engage early with their lender. The Chancellor of the Exchequer met with senior representatives from lenders, just after the most recent rate rise, and asked them to be particularly sympathetic to hardship cases. There are a number of changes which a lender may offer to reduce the impact of rate rises.
Amongst these are:-
- A lender may agree to extend the mortgage term which will result in a reduction in the monthly mortgage payment.
- A lender could agree to a temporary switch from regular repayment mortgages to an interest-only loan. Typically a concession will be granted for 6 or 12 months. A word of warning – during an interest-only concession it follows that the capital is not being reduced and at some point, the loan will have to be switched again to a normal repayment basis with a consequent increase in monthly payments.
- A lender might agree to a short mortgage payment holiday to provide some temporary relief. Again be careful – payments will have to recommence once the payment holiday comes to an end and those payments deferred will lengthen the mortgage term.
Most of this blog and the earlier one from March focussed on borrowers who face an imminent interest rate rise and a corresponding increase in monthly payments. There are however a more fortunate group of borrowers who have a fixed rate arrangement which might be as low as 2% and might not expire until 2027. Those borrowers have the benefit of time to plan. Although I don’t know what rates will be in 4 years, hence it seems likely that they will still be higher than we have become used to in recent years. So for those fortunate customers, I suggest where possible making overpayments, within the limits which most loans permit, so that by the time their fixed rate deal ends the debt has been reduced and so the corresponding increase in monthly payments is lower.
And finally, my blog in March explains the benefits of using a good, whole-of-market mortgage broker. If you need help I have shown below my details and those of my colleague, Heidi, and we will be pleased to assist you.
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