Homeowners with variable or tracker mortgages face paying thousands of pounds more on their mortgage as lenders continue to put up rates and pull deals in the face of new interest rates announced by the Bank of England today.
Those who want to fix their payments are also suffering as a typical two-year fixed mortgage deal has hit 6% for the first time since last December, when mortgages soared to 6.65% after Liz Truss's infamous Mini-Budget before calming down slightly.
Interest rate rises spell bad news for property owners with a variable rate mortgage or tracker mortgage, as your rate will go up when the Bank of England base rate rises. If you are currently on a fixed-rate deal, you’re protected until your current deal ends, although it is estimated more than 800,000 homeowners still have to remortgage onto a much higher rate this year.
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If you’re a homeowner and you're worried about your bills, here we explain what to do if you can't pay your mortgage and what help you can get.
How can I avoid missing a payment?
If you don't usually budget, now's the time to start. You will only have a handle of your finances if you know how much money you have coming in and going out. If you have spare cash, put this away into an emergency fund.
As well as listing your incomings and outgoings, things to look out for include:
- Go through your bank statements and see if there are any bills you can lower or get rid of entirely
- See if there are ways to cut back, such as taking lunches to work.
- Use a benefits calculator to see if you qualify for extra support.
Talk to your mortgage lender
If you’re having trouble paying your mortgage, your first stop should always be your lender, ideally before you miss a payment.
Your lender is best placed to discuss your options with you, such as:
- Allowing you to take a payment holiday: This needs to be agreed by your lender first and interest will keep building up. Your credit file will be affected and it could impair your ability to get credit in future.
- Temporarily switching you to interest-only payments: This reduces payments because you are not paying off any of the capital, only the interest on the loan. But you do need a plan for how to catch up and repay the capital in the long term.
Extend your mortgage
You may be able to extend your mortgage term so that, for example, you’re paying it off over 30 years instead of 25, but remember this will increase the interest payments over the long term.
Even older borrowers may be able to extend their mortgage term, and Ross Lacey, financial planner at Fairview Financial Management, told This Is Money: "Most lenders will generally allow terms to extend to the 70th birthday of the oldest applicant, but some will go beyond this depending on the occupation. Although this means paying more interest overall; it’s a sensible way to bring the payments back into budget."
Use your savings if you have any
Until recently, mortgage rates were so low that the returns you could achieve by investing or earning interest on your savings more than outweighed the benefit of reducing your mortgage. It was rarely worth using your savings to pay off some or all of your mortgage but as mortgage rates are now higher than most savings rates, paying off some of your mortgage could make financial sense.
But Sarah Coles, at investing platform Hargreaves Lansdown, said that building up an emergency savings pot of around three to six months’ worth of expenditure should be a priority before paying off some of your mortgage, as should paying unsecured debts such as overdrafts, personal loans or credit cards.
Help with mortgage interest
If you’re struggling, you might be able to apply for a Support for Mortgage Interest (SMI) loan from the Government. This has to be paid back, but it's usually once you’ve sold your home - although there are some circumstances where you have to pay it back earlier, such as if you enter into a formal debt agreement such as an IVA or bankruptcy.
The current interest is 1.4%, which may go up or down, so it's a lot less than most mortgage rates and how much the Government will pay depends upon the benefit you claim.
You might be able to get a SMI loan if you claim:
Income-related Employment and Support Allowance - up to £200,000
Income based Jobseeker's Allowance - up to £200,000
Income Support - up to £200,000
Universal Credit - up to £200,000
Pension Credit - up to £100,000
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Get free debt advice
Your bank or building society cannot start repossessing your home as long as you are actively engaged with finding a solution to your problems and most major lenders won’t start repossession proceedings until at least three months of arrears have occurred. However, it's very important not to ignore any mortgage troubles you’re having, so you don’t lose your home.
If you’re really struggling, get free debt advice as soon as possible from one of the following organisations;
-
Citizens Advice (0800 240 4420)
- StepChange (0800 138 1111)
- National Debtline (0808 808 4000)
