How to cope with the mortgage crisis, by the experts

Whether you’re nearing the end of a fixed-term mortgage or a first-time buyer, four industry experts tell Rebecca Goodman how you can cope with the surging cost of borrowing

Karen Noye (top left), Joe Stallard (top right), Mark Harris (bottom left) and Polly Tembo offer advice amid the mortgage squeeze (iStock/Seb Higgins/Paul Stallard/Candid Pictures)

Recent peaks in interest rates have spooked millions of homeowners and potential buyers and experts are predicting it to rise further.

It has pushed up the cost of borrowing – again – and comes in an environment where prices are rising across the board, from food and clothes to energy and travel. With stubbornly high inflation, the rise was not welcomed by borrowers, especially those already struggling financially.

Fixed-rate mortgage costs are continuing to rise, and the average two-year fixed deal now stands at 6.78%, according to Moneyfacts, up from 3.74 per cent a year ago. This is the highest level seen since the 2008 financial crisis. The average five-year fixed-rate mortgage is now 6.3 per cent, an annual rise from 3.89 per cent. While the average rate of a standard variable mortgage (SVR) is now 7.67 per cent, a significant rise from a year ago when it was 4.91 per cent and from the average of 4.41 per cent in June 2022.

A borrower with a 25-year £250,000 mortgage at a rate of 4.5 per cent will have seen that rise to 5 per cent, with monthly payments rising from £1,390 to £1,461, explains Mark Harris, chief executive of mortgage broker SPF Private Clients. Yet after 13 successive rate rises, if a borrower had a £250,000 tracker mortgage, set at 1 per cent over the base rate, their monthly payments will have risen 70% from £943 in December 2021, to £1,611.

Borrowers are right to be concerned, but if you’re on a standard or variable mortgage and prices have gone up, you have a fixed-term mortgage that is about to end, or you’re trying to get on the housing ladder, what can you do? We asked the experts for their advice.

‘Things are unlikely to get cheaper so lock in now’

Karen Noye, mortgage expert at Quilter, says this is “going to be a difficult time for all” as high interest rates suck money out of the economy and the BoE have obviously felt that they need to move hard and fast to try and help bring down inflation.

She said: “If you own a home or are in the market to buy one the news over the past few weeks will have been nothing short of terrifying,” but there are steps which can be taken now to soften the blow for mortgage holders over the next few months.

“If your fixed-rate deal is coming to an end in six months or less get in touch with your mortgage broker or lender now and look to get a new deal locked in. Many lenders will allow borrowers to change the product if rates were to fall before the new mortgage completes.

“There is no telling what the future may hold but at least in the short-term things are unlikely to get cheaper so lock in now,” she said.

Getting the paperwork required ready in advance is another way she suggests borrowers can help themselves.

“When you are required to provide any paperwork, do so as quickly as possible as the market is moving so fast that products that are available today are gone tomorrow. Unless your paperwork has been provided and an application submitted for approval then once the deal is gone it is gone for good,” she adds.

Choosing a longer mortgage term is another option. Noye said: “While it may sound like a scary amount of time, opting for a mortgage with a longer term can help reduce your monthly payments.

“Although a longer term does mean that you will pay more in interest over the full term it does reduce your monthly outgoings. Once you come to the end of your deal you could opt to remortgage to a shorter term, so it doesn’t necessarily have to be forever.”

Noye also warns borrowers not to bury their heads in the sand.

She said: “As with lots of things in life, proactivity can help you weather the storm and get some additional help from your lender. Before calling them to explain your position, take some time to work out exactly how much you can afford to pay back.

“There are budgeting tools and free expert advice available to help you manage your finances. There are also debt management charities and Citizens Advice who can help you plan your finances. If you have sought help, do let your lender know as showing that you have looked at ways of paying back your debt shows you’re serious about it, and can help avoid repossession orders down the line.”

Speak up if you’re struggling with your mortgage

Joe Stallard, director and advisor for House and Holiday Home Mortgages Ltd, said following the latest rise, anyone with a standard or tracker mortgage will have seen their payments increase.

He said: “Lenders will have notified affected borrowers of changes to payments and anyone struggling should get in touch with their lender or broker as a first port of call.

“If you’re struggling with your mortgage then don’t suffer in silence. Speak to your lender or broker and there may be things that can be done to help ease the situation. If you are struggling, you don’t have to face it alone, and in many ways, it’s best not to listen to all the voices at the moment, those who are making predictions are just guessing like the rest of us.

He advises speaking to a broker and making sure “you’ve got a good overview of how you want to proceed, and you have all the relevant documentation together so you’re ready if things are still changing really fast.”

Plan ahead, and take action now

Mark Harris, chief executive of mortgage broker SPF Private Clients, explains that the latest rate rise had already been priced into fixed-rate mortgages, with rates edging upwards in recent weeks leaving many borrowers, particularly those due to come off relatively cheap products, in for a real payment shock.

He is advising clients to “plan ahead as much as possible and take action now” by booking in rates up to six months in advance. If rates do fall in this time, he said it should be possible to opt for a cheaper deal.

There are other ways to put yourself in the best position possible amid the crisis.

He said: “If you do not need to remortgage for a year or two, put yourself in a stronger position by paying down other debt, curbing unnecessary spending, and consider overpaying on your mortgage, if possible, to lessen the pain when the time comes.

“Those planning on buying a property may find their affordability increasingly stretched as a result of this latest rate rise. However, anecdotal evidence suggests buyers are spotting opportunities and negotiating hard on price, while sellers who desire a timely and successful sale are having to be realistic as to what they can achieve.”

For those who are struggling to pay their mortgage, he said: “Lenders don’t want to repossess properties but they do need to know if borrowers are having difficulties so that they can work with you to find a solution.

“These may include switching all or part of your mortgage onto interest only for a time, extending the term (if you are on a repayment deal), or perhaps taking a mortgage holiday until your financial situation improves.”

15 schemes available for struggling borrowers

Polly Gilbert, mortgage expert at broker Tembo, said there are a range of options for first-time buyers if prices have become too high following interest rate rises.

The most important thing, Gilbert, says is to speak to a mortgage broker.

She said: “It is very hard to navigate specialist mortgages online and there are many options that a lot of customers are not even aware of when they’re looking. For the majority of mortgage businesses there is no upfront fee when you are just considering your options, so there is no cost to do this and it is really valuable.”

She points out that there are specialist mortgages, for example for those in specific professions, such as teachers or nurses, which could allow a borrower to take on a larger amount than with a standard mortgage.

Gilbert also advises extending a mortgage which could potentially increase affordability.

“Traditionally a mortgage was repaid over 25 years but as people work longer, and the retirement age has increased, the term of mortgages has increased too.

“By increasing your term to 35 years you can reduce the monthly amount you pay as you are repaying the loan over a longer period. The downside is that as the loan is going on for longer, you will pay more interest.

“However, you could always remortgage at a future date if your financial position improves and reduce the term of your mortgage so you pay it off sooner. You could also opt for voluntary over-payments if you were able to as well,” she adds.

For those hoping to get on the property ladder, Gilbert says there are over 15 different buying schemes which could help if costs have become too high. These include ‘deposit unlock’ and ‘own new’ for new-build homes along with shared ownership.