According to latest figures from trade body UK Finance, more than 1,000 homes were repossessed between January and March this year. Arrears were also up slightly in the first three months of the year, with 76,630 homeowner mortgages in arrears of 2.5% or more of the outstanding balance, up 2% compared to the previous quarter.
Homeowners with variable rate mortgages are feeling the impact of a series of interest rate rises since December 2021, whilst those who are currently protected by fixed rate mortgages are likely to see a sharp jump in costs when they come to remortgage. These increases in mortgage costs come at a time when most people are already facing huge financial pressures due to the cost of living crisis, which has seen food bills and other household expenses soar.
Here, we look at some of the ways you might be able to ensure that your mortgage payments remain manageable, even if there are further interest rate rises ahead.
Check your rateAlthough there isn’t much homeowners can do about the fact interest rates are now substantially higher than they were previously, it’s worth reviewing your current mortgage rate to make sure you’re on the best deal possible.
David Hollingworth, Associate Director at L&C Mortgages said, “Mortgage rates are higher than the historic lows that borrowers have been used to in recent years but had stabilised after the rapid increases in fixed rates after the mini budget. The recent base rate rise and potential for more to come has seen fixed rates increasing again but borrowers can secure a rate well before their current deal is due to end with most lender offers valid for up to 6 months.”
Consider a longer mortgage termOne way to lower your monthly payments could be to opt for a longer mortgage term. Bear in mind though that this will mean you pay more over the long term as the total interest payable will be much higher than if you stick with a shorter term.
“This isn’t a decision to take lightly as lengthening the mortgage term will come with a cost,” said Mr Hollingworth. “However, it could be a useful measure for managing budgets in the near term, to help adjust to the higher costs that come not only with higher mortgage rates but also general cost of living.”
Think about switching to interest-onlyChanging from a repayment basis to an interest-only mortgage could bring down your monthly costs substantially, but it will mean you won’t be reducing any of the capital you’ve borrowed. You’ll also need to be able to demonstrate to your lender that you’ve got a clear plan in place as to how you’ll repay your balance at the end of your mortgage term.
Mr Hollingworth said: “Reducing payments comes at the expense of reducing the mortgage amount gradually over time and switching back to repayment could only get harder over time.”
Can you reduce other outgoings?If you’re finding it impossible to make ends meet, then as well as reviewing your mortgage, it’s a good idea to see whether you might be able to reduce any other outgoings, including other, more expensive debts such as credit cards or personal loans. If you’re paying steep rates of interest on these, it’s worth looking into whether you can reduce these costs, for example, by moving your credit card debt to a balance transfer card with a 0% introductory rate.
Another option you might want to consider is consolidating these debts into your mortgage, although it’s important to weigh up all the pros and cons of doing so carefully first.
Mr Hollingworth said: “This could turn short term debt into a long term commitment, which could ultimately end up costing more, so it needs careful thought before using equity in the home to pay off other loans.”
Talk to your lenderIf you are struggling to cover your mortgage costs, make sure you let your lender know as soon as possible that you’re experiencing difficulties.
They should be able to help you find solutions that will help you and may, for example, be able to offer you a payment holiday to give you a break from payments while you get back on your feet.
“Payment holidays could be a useful short-term measure to cover a difficult time that should come to an end in the foreseeable future,” said Mr Hollingworth. “For example, where a new job has been secured but not yet started, a payment holiday could help to avoid bigger problems in the interim. Remember that the interest will be added to the mortgage so there’s a longer-term cost to a payment holiday and payments will be slightly higher when they resume.”
If your lender can’t help, or you want to talk about the issues you’re having with someone else,
debt charities such as National Debtline and StepChange should also be able to help with information on how to manage your debts.