Mortgages
In July 2023 I posted a blog analysing the financial situation at that time, as I saw it, and making some recommendations concerning actions which could be taken by borrowers who were enjoying a very low mortgage interest rate but were faced with the prospect of the rate increasing quite significantly at the end of their mortgage deal.
As I write this (18 September) Bank of England have just confirmed that their base rate will remain at 4% at least for the next 8 weeks. There have been suggestions that base rate might fall again at least once before the end of 2025 and if so this is likely to be down to 3.75%. Although this might be good news for borrowers it is less so for savers who will have seen lower returns on their savings in the last year or so.
In the rest of this blog I want to focus on those customers who are facing increased monthly mortgage payments once their deal ends. Taking action ahead of a low-rate deal ending, and in advance of an increase in interest rate and payments, can help 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 insists that lenders are sympathic to those borrowers facing hardship as a consequence of increasing mortgage payments. There are a number of changes which a lender may offer to reduce the impact of rate rises.
Amongst these are:-
1. A lender my agree to extend the mortgage term which will result in a reduction in the monthly mortgage payment.
2. A lender could agree to a temporary switch of normal 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.
3. 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.
In my earlier blog on this subject I have focussed on borrowers who face an imminent interst 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 under 2% and will not expire until 2027. Those borrowers have the benefit of time to plan. Although I don’t know what rates will be in 2 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 earlier blog explains the benefits of using a good, whole-of-market mortgage broker. If you need help I have shown below my details and I would be pleased to assist you.
Michael Forward michael@michaelforward.co.uk 01604 635 435