Katy’s story: how Britain’s growing mortgage crisis is starting to hit home

Tales of mortgage hardship will be repeated over the coming months, reports James Moore

There were almost twice as many repossessions at the end of 2022 as the same period in 2021 (PA)

As ministers face calls to act over surging rents and mortgage rates, the human cost of Britain’s rapidly developing housing crisis is becoming clear.

Consider Katy, from West Lothian, who spoke to The Independent about the personal financial crisis engulfing her.

The 46-year-old found herself in a downward spiral of redundancy and a lack of opportunity, something all too common for those in their forties and fifties despite Britain’s chronic labour shortages and companies saying they welcome applications from older workers.

Her problems were exacerbated by the pandemic; having gouged her savings to keep up with her repayments, and with the mortgage rate bomb set to explode, she eventually had no choice but to sell her “forever home”.

A debate is now raging over whether the government should really be involved in subsidising the costs of buying an asset that will (most likely) appreciate while others can’t afford to eat. That is what a mortgage bailout – or a furlough, call it what you will – would involve.

But tell that to Katy. Hers is a story that will be repeated over the coming months.

But this is a slow-burn crisis. According to the Resolution Foundation, around three-fifths of borrowers on cheap fixed-rate deals, taken out when interest rates were on the floor, have yet to remortgage in the current, much more expensive, financial climate.

Even when the majority have taken this brutal hit, it may be some months before the full extent of the crisis is clear. Mortgages are not like other forms of debt; borrowers may let bills slide or skip repayments on their credit cards or personal loans, but they will almost always seek to pay their mortgage first.

Struggling homeowners such as Katy will do everything they can before resorting to selling their home because it is not just a financial investment, it is deeply personal. This explains why, while the number of repossessions recorded by banks has been rising, it remains low by historic standards.

Money advice charity Step Change is very worried. “By the end of this year, millions will have faced significant hikes in their mortgage payments and while some will cope, others will prioritise keeping up by cutting back in other areas, or using [other forms of] credit to make ends meet in a way that increases the risk of serious debt problems later on,” says Peter Tutton, head of policy.

“The fact that we aren’t yet seeing a [significant] uptick in mortgage repossessions, or in homeowners seeking debt help, doesn’t mean that mortgage holders aren’t feeling the effects of 12 successive rate rises.”

Tutton says the Financial Conduct Authority requires mortgage lenders to manage those in arrears carefully and sympathetically and to offer help and forbearance if necessary. The way they handle these people does appear to have improved with the hot breath of the regulator on their backs.

There are other steps consumers can take to ease their plight, too. This can include extending the term of a mortgage to 30 or 35 years, for example. This can greatly reduce the cost of monthly repayments, albeit at the cost of greatly increasing the overall amount they have to pay back.

Ele Clark, senior editor of Which? Money, said: “With the average two-year fixed-rate mortgage hitting 6 per cent, it’s understandable that many people will be worried about affording higher repayments.

“The first port of call should always be to talk to your lender. This may seem like an intimidating thing to do, but it’s important to remember that lenders are obliged to help customers and speaking to them will not affect your credit rating.

“The support offered by your lender could include a temporary break from payments, interest-only repayments or extending the term of your mortgage. If you’re entitled to benefits such as universal credit, you could be eligible for the government’s support for mortgage interest loan scheme.”

Clark’s advice is sound; speaking to your lender is indeed the right thing to do. But new measures developed to look after “distressed” borrowers haven’t yet been put to the sort of test they are facing today. What happens when banks and building societies are deluged with calls?

“As more homeowners get squeezed harder by the cost of living, lenders, regulators and government will need to ensure people have options to get through this difficult period without falling into harmful problem debt,” says Tutton.

However, Rishi Sunak has so far ruled out any extra help for borrowers at the sharp end of the crisis, not least because it would raise questions: should help be means tested? Who would qualify and who would be left out? What happens to renters, many of whom are in much worse situations as landlords feel the pinch? This may explain why the prime minister insists the government will “stick to the plan” to halve inflation so that interest rates can be eased.

But will Mr Sunak still be able to talk about sticking to plans when his backbenchers are inundated with constituents demanding the same help as provided over energy bills and pandemic furloughs?

Government intervention in mortgages would be “insanity,” says a City source. “Privatise the upside; socialise the downside. Bonkers.”

But isn’t that what happened with the lenders in 2008, when the taxpayer socialised the banks’ losses?

Higher interest rates have meant higher profits for banks because they haven’t passed the increases onto savers; it is easy to see how the banks will face accusations of profiteering.

Meanwhile, the housing squeeze is spreading. Analyst Neal Hudson tweeted a graphic showing the proportion of mortgaged house purchases that were over four times the borrower’s income in 2021 by postcode area; these are the people most at risk from the current surge in rates. They are heavily concentrated in London and the blue-wall counties surrounding the capital.

How long Mr Sunak will be able to resist political pressure from this quarter is an open question with an election looming. It may prove a bigger headache than Boris Johnson.