The Mortgage Clinic: 'What are my options for switching?'

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The Independent Online

'I took out a £140,000 mortgage in April last year, but as interest rates have since risen by 1 per cent, my repayments are spiralling out of control. Should I move the mortgage?'
LH, by email

Judging by the rest of your email, you are young, earn a decent salary and have used your savings to pay off some of your mortgage. Even so, you are still feeling the pain of recent interest rate rises.

Your options are complicated by the fact that you live in Spain, and that your parents helped you buy the property with a £100,000 mortgage of their own.

The fact that you don't live in the property means that you may have to take out a buy-to-let mortgage if you switch lenders now, says David Hollingworth of brokers London & Country.

Although you are paying a variable rate now, you are unlikely to save money by switching to a buy-to-let deal. "If you are letting the property while you live in Spain, you will almost certainly have to tough it out until October," says Hollingworth.

If the property is empty and you plan to return to it in the autumn, first you should check whether you will have to pay early redemption charges. Even if there are no fees, the way your mortgage is set up will make it harder to switch. If you are responsible for the repayments on both your mortgage and your parents', you are borrowing almost six times your salary. This is more than most lenders will agree to. Although your bank might have been willing to be flexible because you are a recent graduate, not all banks and building societies will be as accommodating.

"Lenders would have to look at this mortgage with your parents acting as guarantors, and they would take not only your income but your parents' income and their age into account. This means that the choice of deals out there will be thin."

Speak to your bank first about whether you can move to a fixed-rate mortgage, but be sure to compare that with the wider market. Abbey, for example, has a two-year fixed rate at 5.89 per cent.

A lower rate of interest is only part of the answer. If you are struggling with the recent increases, you might have overstretched yourself to buy the property.

If you want to keep it, you need to look at cutting your outgoings. "If you have carried on spending even though your mortgage payments have gone up, you need to look at tightening your belt," Hollingworth says.

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