Borrowers worried about sharp rises in mortgage repayments may be feeling disillusioned as the Bank of England has continued to hike interest rates.
Many homeowners are already paying hundreds of pounds more a month in mortgage repayments, and there’s little sign of any respite on the horizon, despite some lenders cutting fixed rates slightly as inflation eased. Read more in our article Interest rates jump to 5.25%: how to manage rising costs.
If you’re approaching the end of your deal, or looking to buy a home, you may still struggle to find an affordable mortgage deal. Meanwhile, those stuck on their lender’s Standard Variable Rate (SVR) face eye-watering average rates of around 7%.
If increases in your mortgage repayments are causing you stress, here are some reasons why things might not be as bad as they seem, as well as where to seek help if you’re struggling.
If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.
1. You are very unlikely to lose your home
There are few things more anxiety-inducing than the thought of losing your home, but the good news is that even if you’re struggling to meet your mortgage repayments, it’s an extremely unlikely outcome.
Lenders will occasionally seek to repossess a property if a borrower has failed to pay their mortgage repayments for a significant amount of time, hasn’t sought help, and is unlikely to ever repay their debt. However, lenders will always work with homeowners first to come up with alternative payment plans and are generally reluctant to repossess homes except as a last resort.
Figures from UK Finance show that only 750 homes were repossessed in the UK in the first three months of 2023, a relatively small number considering how sharply mortgage rates have risen in the past year.
What’s more, a new mortgage charter from the government states that lenders cannot seek to repossess a home within 12 months of the first missed payment without consent. Therefore, if you do end up missing a payment, you have plenty of time to come up with a plan and seek help.
Read more about your options if you are worried about losing your home in our article Will I lose my home if I can’t pay my mortgage?
2. Mortgage rates are starting to fall
Some of Britain’s biggest mortgage lenders are starting to reduce their rates a little, in the wake of inflation easing to 7.9% in the 12 months to June.
Nationwide is reducing its rates by up to 0.35 percentage points, while TSB is reducing its two-year deals by up to 0.55 percentage points. Barclays and HSBC have also lowered rates by up to 0.15 and 0.35 percentage points respectively.
NatWest, Halifax and Virgin Money have followed suit. Virgin Money said it would cut rates on some mortgages by up to 0.41 percentage points. Halifax said it would reduce its five-year and ten-year fixed rate remortgage deals by 0.18 and 0.27 percentage points respectively, while NatWest said it would cut rates for two-year and five-year deals by up to 0.3 percentage points.
3. Long-term fixes are lower than shorter-term fixes
Some five and 10-year fixed rates are currently lower rates than two-year fixes. While this isn’t much help for those seeking a short-term fixed rate, it’s a sign that lenders expect rates to fall over the longer term.
Teddy Cenaj, mortgages expert at Rest Less Mortgages, said: “Rates are gradually starting to ease across the market, but two-year deals are still relatively high. The fact that lenders are offering lower rates on their five-year and even ten-year deals suggests that they think the market will improve eventually, so if you’re seeking a mortgage, it’s a question of whether you want to lock in now for long term security or if you can wait a bit longer for potentially better deals to start appearing.”
Read more in our article Should I lock into a long-term fixed rate mortgage?
4. You might have already been “stress tested” for higher rates
In 2014, some lenders began “stress testing” mortgage applicants. This means that as well as checking that a borrower can afford repayments at the current rate, the lender also ensures that they’ll be affordable in the event of significantly higher rates.
Following a review in 2022, the Bank of England withdrew its recommendation for mortgage lenders to stress test applicants. This was on the grounds that more people were being unfairly turned away from mortgages that they could afford, particularly with property prices on the rise.
However, while stress testing is not used much by lenders these days, if you originally took out a mortgage back when this was commonplace then you’re likely to stand a better chance of managing increased repayments.
5. Lenders are offering more flexible options
As mentioned, lenders are usually keen to work with struggling borrowers to work out if there is a way to make repayments more affordable.
The government’s new mortgage charter, which was agreed to by the UK’s major mortgage lenders, entitles borrowers to make certain changes to their mortgage if they wish.
You should be able to discuss a range of options with your lender to manage rising repayments, without this affecting your credit score.
For example, you could be able to switch to an interest-only mortgage for six months, meaning you’ll only make interest payments for this period and not payments on the mortgage balance itself, without affordability checks or any impact on your credit score.
Alternatively, you can extend your mortgage term in order to reduce your monthly payments, and then switch back to your original term within six months of the change. Learn more about the benefits and disadvantages of this option in our article Can I change my mortgage term?
Additionally, if you’re approaching the end of a fixed-rate deal, you’ll be offered the chance to lock into a new deal up to six months in advance, and have the freedom to apply for a better deal right up to the deal’s start date. If you’ve kept up your repayments, you’ll be able to switch to a new deal without undergoing an affordability check.
Help if you are struggling with mortgage repayments
Of course, even with all of this in mind, there’s no denying that it’s a tough time for borrowers. You can read more about how to weather the current turmoil in the mortgage market in our article Mortgage market mayhem: what it means for you.
If you’re struggling to cover steeper payments, you may find some useful information in our guides Five strategies to survive soaring mortgage payments and What can you do if you can’t pay your mortgage?
Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage. If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.
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