Homeownership is a significant milestone for many, but it comes with its fair share of challenges—especially when it comes to managing your mortgage payments. Recent mortgage interest rates have reached a peak not seen in the last 15 years, so if you’ve found yourself in a position where making those payments is becoming increasingly difficult, you’re not alone. In fact, government figures show around 23% of mortgage holders are struggling to keep up with payments.
The good news? There are steps you can take to navigate through this tough period. Here’s a guide to help you find your footing:
Understanding Mortgage Types:
- Tracker Mortgages: These loans mirror the Bank of England‘s benchmark interest rate—currently at 5.25% following its latest freeze (November 2023). This base rate is reviewed eight times throughout the year.
- Standard Variable Rates (SVRs): These are set at the lender’s discretion. Although they’re swayed by the Bank’s rate, they are not tied to it.
- Fixed Rate Mortgages: Fixed Rate Mortgages are the top preference for three-quarters of mortgage holders, as they offer predictability, typically from two to five years. Once the term ends, homeowners can either refinance or move to an SVR.
Will applying for a new mortgage become more difficult?
Embarking on a new mortgage application can be a seamless journey, dependent on your personal financial circumstances and your ability to manage potential increases in repayments.
Thankfully, due to a consensus amongst lenders, the Treasury, and regulatory bodies, homeowners can move to a new fixed-rate mortgage without enduring a new financial feasibility check once your existing mortgage agreement ends – provided you’ve been consistent with your repayments throughout.
If you’re looking for a new mortgage, it is certainly wise to speak with a mortgage advisor. Each of our offices offer independent mortgage advisors who would be happy to help you with any questions you may have. Plus, they have access to the whole of the mortgage market, which means they may be able to secure you a cheaper deal than you’re able to find yourself. They can offer a comprehensive view of the mortgage terrain and are well-equipped to identify the best solutions tailored to your individual financial needs.
Am I able to reduce costs when I renew my mortgage?
Consider using any savings to make a substantial payment, effectively decreasing your loan-to-value ratio.
Another plan may be to allocate your savings to an associated offset account, which lets you pay interest only on the remaining mortgage balance after subtracting your savings.
You could also explore lengthening your mortgage term, but be aware that although this would bring your monthly payments down, this could mean paying more over time.
Consulting with a mortgage advisor is advisable; they can guide you through diverse options and help find the one that suits you best.
What if I miss a mortgage payment?
Falling two or more months behind on your mortgage places you in a state of default, known as being in arrears.
The Financial Conduct Authority (FCA), which regulates mortgage providers, mandates that these lenders must treat customers with fairness.
The FCA recommends that if you anticipate problems with making your payments, you should contact your lender immediately. Early communication is key. Lender representatives are trained to provide assistance in such situations.
What will my lender do?
Should there be a delay in payment, your lender must, within 15 business days:
- Itemise the payments that you have missed.
- Indicate the total remaining balance of your mortgage.
- Inform you of any charges that may apply.
In addition, lenders are expected to consider any reasonable proposal you present to settle your overdue payments. This may involve adjusting your mortgage’s duration to decrease your monthly payments or allowing you to make interest-only payments for a certain period.
It’s important to be aware that missing payments or agreeing to pay less can affect your credit score. This may have a negative influence on your future borrowing capacity.
Can I pause my mortgage repayments for a while?
Borrowers may have the option to temporarily postpone their mortgage payments through a payment holiday.
This option may be offered by some lenders based on individual circumstances, although it is generally not available to those who are already in arrears.
Be aware that opting for a payment suspension will be recorded on your credit history.
Will my home be at risk?
There are circumstances under which some homeowners may opt to put their houses on the market and choose to purchase a cheaper property, therefore taking on smaller monthly mortgage payments.
In extreme cases, your lender may repossess the property. However, instances of property repossession are much rarer these days than they were years ago. This is because a lender must go through several phases before they can proceed with repossession, and this process usually unfolds over the course of approximately two years.
If you’re worried about the security of your home, seeking free, unbiased advice on debt management could provide clarity on your available choices.
Is there any government support available?
Generally, the government does not get involved directly with homeowners grappling with increasing mortgage expenses. However, most lenders follow the guidelines set by the government’s mortgage charter, which mandates that lenders must clearly outline all available alternatives to their clients.
In the UK, individuals receiving certain benefits might be eligible for the Support for Mortgage Interest (SMI) scheme. This scheme provides aid by covering a portion of the mortgage interest as a loan that gathers interest over time and is repayable in the future.
Typically, this loan is repaid when the homeowner either sells the property or passes away.
Before committing to this form of assistance, it’s crucial to fully grasp the stipulations and eligibility requirements.
For more comprehensive guidance, visit the government’s Moneyhelper website.
Should you need advice or assistance with your mortgage, feel free to contact your local Arden branch, we have friendly in-house mortgage advisors who are ready to offer help and discuss your options today.