There has been a glimmer of good news for homeowners this week, as some lenders cut interest rates on mortgage deals for the first time in ages. As is so often the case though, caveats and conditions apply and new borrowers aren’t likely to get such a cut-price mortgage. For now, rates hover between 5% and 5.5%, which is way over what many people paid when they first bought their home. According to UK Finance, around 800,000 people a year on average are due to come to an end of their existing fixed rate deal, which means there may be a nasty surprise awaiting those who haven’t looked at their options. Mortgages are one of the biggest financial commitments we will make in our lives. Getting on the housing ladder can be challenging.
Yet these are also difficult times for homeowners who are struggling to cope with rising interest rates. I’ve spoken to some excellent mortgage brokers this week, who have pointed out that people who are unsure about their options can get in touch and find out more about how they could potentially save – or even buy their first home. However, if you are unable to pay your mortgage, there are no easy answers. However, there are a range of options to buy you some time to breathe while things settle down. But it’s vital you take realistic, professional advice and understand all the options and implications before continuing.
We tend to go in to denial when the prospect of a more expensive mortgage is on the horizon. But the sooner you act, the better your options are. When your existing deal is up for renewal, you’ll receive a letter with some illustrations showing some quite scary figures. As worrying as it is to receive these letters, don’t panic. This is just what happens if you come to the end of your existing deal and haven’t arranged a new one. If you don’t do anything, you’ll usually be put on to a ‘standard’ rate automatically. These are often pretty poor – but it doesn’t mean this is the best and only option for you. Have a think about your financial situation. Are you going through a short term cashflow problem or is this something longer term?.
If you’re worried about getting through the next few months, then explain to your lender that you are experiencing short term financial difficulties. You may qualify for a mortgage payment holiday. This is a short period where you are given a break from your regular payment, though interest will continue to accrue and the missed payments get tagged on the end of the mortgage. This means you will pay slightly more over the long term.
Alternatively, the mortgage firm might agree to just allow you to stop payments while you get back on your feet. Ask if this will impact your credit score though. In theory, a lender does not have to put a ‘mark’ on your credit file to say you’ve missed a payment. But if they may automatically mark the loan or credit payments as ‘missed’ on the file – even if it’s down to a payment holiday.
Other lenders might actively choose to show that you have not made a payment as an ‘accurate’ reflection on how you are honouring your contract. This could have an impact on any future borrowing. So you should always ask the lender if the payment holiday will affect your credit file – and if they say it won’t, get them to confirm this in writing. Don’t wait until your existing deal comes to an end before you ask your lender about the options available. The mortgage provider will need to understand more about your financial situation, so take some time to write down what the next few years might hold in terms of your job and any significant life changes that might be on the horizon.
Of course, if you don’t want to spook them, speak to an organisation like Citizens Advice or Shelter. They have loads of useful guides and information on their websites too for people concerned about paying the mortgage. If your situation isn’t dire, then consider chatting to a mortgage broker or financial adviser for an assessment of your options. This will cost you a fee – but it’s worth it for practical advice and peace of mind. Here are the options if you really can’t afford your mortgage payments.
An interest-only mortgage does exactly what it says on the tin. You only pay the interest on the mortgage but not the cost of the property itself. The obvious problem here is you will not end up owning the property unless you have an alternative way of paying off the debt. A lender will usually want to know how you intend to do this too. However, if this is a temporary option, then the lender may allow you to switch to an interest-only deal for a limited term.
