What can you do if you’re worried about paying your mortgage or rent?
Whether a mortgage deal is ending soon, or you’re concerned about keeping up with existing payments, options are available. By Vicky Shaw.
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Your support makes all the difference.Rising mortgage rates are piling more pressure on already-squeezed households.
The Bank of England has just hiked the base rate for the 13th time in a row, with the latest increase taking it from 4.5% to 5%. This will immediately push up costs for some borrowers.
But many homeowners are yet to feel the impact from rising mortgage rates and will need to prepare for bigger monthly bills.
Some 800,000 fixed-rate deals are due to end in the second half of this year, according to trade association UK Finance.
And 1.6 million more deals across the UK are due to end at some point in 2024.
David Hollingworth, from broker L&C Mortgages, says: “It is possible to act well ahead of a current deal ending and lender offers will typically be valid for up to six months.
“That would allow a fixed deal to be secured six months before the end of the deal, which could bag a better rate if fixed deals keep on climbing.
“If rates do ease back, then it is still possible to review the market up to the point of completion to see if a better option could be available.”
Some homeowners may still have savings built up during the coronavirus pandemic that they could use to make overpayments and reduce their overall mortgage debt.
If doing this means that you drop into a lower loan-to-value bracket, it could help with the mortgage rates that you are offered.
For those worried about keeping up with their current repayments, UK Finance says lenders will help customers consider their options.
Depending on individual circumstances, a homeowner may, for example, be offered a part-payment plan – where someone pays a reduced amount, covering the interest and some of the loan amount.
It may also be possible to stretch the length of the mortgage term, to make monthly repayments more manageable. Bear in mind, though, that this could mean paying significantly more in interest over the longer-term.
For some borrowers, making a temporary switch to an interest-only mortgage may be appropriate, where only the interest on the loan is paid, but the original amount borrowed is not paid down.
Lenders may also agree a temporary payment holiday, although, again, the longer-term implications need careful consideration.
Further support information is on UK Finance’s Cost of Living Support page.
When contacting your lender, have your account number and details of your income and outgoings handy.
Charles Roe, director of mortgages at UK Finance, says: “Lenders are ready to help anyone struggling with their mortgage payments.
“If you’re worried about your finances, please get in touch with your lender as soon as possible to discuss the options available to help.
“Lenders have trained and experienced staff who can help you consider your options, and support will be tailored to your individual circumstances. Please don’t put it off; your lender is here to support you.
“Making that initial call to your lender to find out what options may be available to you won’t affect your credit score.”
The regulator is also keeping watch on mortgage lenders and other financial firms.
In May, regulator the Financial Conduct Authority (FCA) proposed that requirements for lenders to support borrowers in difficulty – that were put in place during the coronavirus pandemic – should be made permanent.
The regulator expects new rules to come into force in the first half of 2024.
A new consumer duty will also come into force from July 31, setting out higher and clearer standards of consumer protection across financial services.
The FCA has written to firms’ bosses about its expectations, once the duty comes into force.
Sheldon Mills, executive director of consumers and competition at the FCA says: “We recognise that many mortgage borrowers will be worried about rising interest rates and the impact this could have on household budgets.
“We have worked with lenders to ensure borrowers concerned about, or already struggling with, higher mortgage payments get the tailored support they need. Lenders have a range of tools available that can help you manage repayments.
“If you’re worried about keeping up with your mortgage payments, speak to your lender as early as possible, as help is available. Talking through your options will not affect your credit rating.”
It’s not just homeowners who will feel the effects of surging mortgage rates, as squeezed landlords pass on the rise in their mortgage costs on to renters.
Property firm Savills recently said that average net profits for landlords are at their lowest since 2007.
Richard Donnell from property website Zoopla says: “A chronic lack of homes for rent due to low investment by landlords is creating strong rental increases as we enter the busiest time for renting.”
He says renters are staying put for longer in properties “to avoid rent rises by moving – the average renter stays in their home for 4.4 years now.
“Where people have to move, they are seeking smaller homes and looking for better value for money.
“Some will be forced to share or even move back home with family or friends. It’s particularly tough for those on low incomes and singles with only one source of income.”
If you’re struggling with rental payments, it’s important to explain this to your landlord.
That way you can try to work out an arrangement and be clear about the extra time you need, rather than waiting with dread until a payment is missed.