Britain is in the middle of the toughest mortgage squeeze since the early 1990s as interest rates show no sign of going down, heaping misery on millions of homeowners.
Solutions
This is on top of all the other costs and bills laying waste to household finances. So it’s important that borrowers get the best solutions for their finances.
Fixed rates now past 6% mean getting their feet on the property ladder is more difficult than ever for prospective first time buyers.
People can opt for a low deposit or a 100% mortgage. However, if they do so they could also risk the problem of negative equity, especially if housing demand is hit.
Alice Haine, personal finance analyst at Bestinvest, said people could also opt for a mortgage with a longer term, such as 35 or 40 years.
Some will have to postpone their home buying dream, however.
“Waiting until the situation eases won’t remove the pressure entirely as renters aren’t immune to the mortgage chaos either as landlords will look to pass on the extra costs to tenants,” Haine warned.
For homeowners looking to refinance in the next six months, choosing between a variable mortgage and a fixed-rate deal is the big question of the moment.
As interest rates are expected to rise even further those who need protection against future hikes should try to lock in a fixed rate now, Haine advised.
Those who can tolerate more risk could try a discounted variable mortgage or tracker. The advantage is that it could be cheaper for them in the long term but the disadvantage is they could feel more pain if rates continue their upward climb.
Uncertainty
At a time of such uncertainty choosing to lock in a two or five year fix is tough.
Five-year fixed rate mortgages are lower than two-year products at the moment two year deals may provide more options.
But if you prefer to know where you are with repayments, five year deals offer more certainty for longer periods.
Haine said: “The only good news is that borrowers can lock in a new deal six months ahead of their current product maturing. They can also apply for a better product right up until the new term starts, so keeping your options open and staying in touch with your mortgage broker during that time will be key.”
Another option for people remortgaging is to sell up and downsize though achieving the desired price level for the sale may be tricky if house prices fall considerably over the summer.
If you can afford it and have longer before your deal ends, it might be worth thinking about overpayments, which would bring down the balance owed and the amount of interest paid.
Anyone likely to default on their mortgage should contact their lender straightaway and ask for information and support, Haine stressed, noting that under the government’s new Mortgage Charter, lenders must be supportive of those in financial distress.
They might be able to move to an interest-only mortgage for six months, extending the mortgage term with borrowers able to go back to their original terms within a six-month period and not have their credit score negatively affected.
Payment holidays?
There is also the possibility of payment holidays but that would mean a longer term cost as interest would be added to the mortgage.
If the worst comes to the worst, struggling mortgage borrowers also have more time before their properties can be seized.
Haine added: “Those in severe mortgage distress can prevent their home from being repossessed for 12 months.”
