Mail on Sunday mortgage comment

ended 01. July 2022

Journalist at the Mail on Sunday is writing a feature today on how to get your finances recession ready. What should people do if…

  1. They’re still in a fixed deal but are worried about losing their job / seeing income fall and want longer term security?
  2. They want to remo but don’t know how long to go for / might be considering a house move soonish (family growing / downsizing etc)
  3. Can’t remo for some reason – recently self employed / credit blip etc – and they’re facing rising repayments as BOE hikes base rate?
  4. Some numbers looking at the payment shock lots of households are inevitably going to face when their two year fixes end later this year / early next. Product rates are higher by some margin on 2020 – what’s the implication for affordability assessments for those who stretched themselves last time they took a deal?
  5. How likely is it that households will face a payment shock like this? Or will high HPI insulate them from the worst?

4 responses from the Newspage community

1 - If it is known that these changes will happen to the household finances they need to be factored in from the outset and could impact a lender's decision to provide a mortgage in the first instance. If it's a speculative scenario then you need to think carefully about fixing it in the long term. If it gets to the point where you have to sell the house due to being out of work and the mortgage still being unaffordable you could be hit with large early repayment charges to exit the mortgage. 2 - How long you tie into a mortgage is never a one size fits all, it should be based on yours and your family's needs. Ideally, you'd want to tie in a fixed deal ending that fits around when you plan to move. If your fixed deal doesn't align with when you want to move you could be limited to either porting the current mortgage which will be subject to if they will lend you the mortgage you need on the new property or potentially incurring hefty early repayment charges. 3 - If you circumstances have changed since taking the mortgage and you can't switch to a new provider, most lenders will offer the option of securing a new fixed rate with them. However, this doesn't nesicariliy mean it will the cheapest available. 4 - Lenders will certainly looked to factor in the rising cost of living and people who maxed themselves out last time round could find it difficult finding a suitable lender. However, each lenders assessment is different and therefore important to seek out an expert in the field who could look at all options for you.
For anyone looking to remortgage in the next year, the best thing you can do is cut out any unnecessary discretionary spending at least 3 months before you want to apply. Lenders will look at your recent bank statements, so showing your finances are in good order is crucial. If interest rates do go up to 3% later this year, as some analysts are predicting, anyone remortgaging is likely to pay significantly more for their mortgage. On top of all the other rising costs of course. But better that than being stuck on your lender's SVR rate, which of course is not fixed and subject to change at any time.
1. They’re still in a fixed deal but are worried about losing their job / seeing income fall and want longer term security? Speak to a broker, Look at their early repayment charges, if these are low enough to justify remortgaging for peace of mind ask your broker to look at lender offering longer fixed rate terms. The initial rate on these longer fixed term interest products will be higher but they will likely prove to be beneficial in the long run. 2. They want to remo but don’t know how long to go for / might be considering a house move soonish (family growing / downsizing etc). The best option would be look for a lender who can offer porting ( moving your existing mortgage to a new property during the fixed period), option 2 would be to look at lenders with no early repayment charges, option 3 look at lenders with low early repayment charges and option 4, fix your mortgage rate for a shorter period of time (e.g you have a growing family and will look to move in 2 years then fix the rate for 2 years. 3. Can’t remo for some reason – recently self employed / credit blip etc – and they’re facing rising repayments as BOE hikes base rate? In all the mortgages I see as a broker only around 5% or less are un re-mortgageable, there will almost always be a lender who can help, go to a broker who specialises in your niche, (e.g you are recently self employed, go to a self employment specialist broker) alternatively there are great intergenerational mortgages at the moment if you have the ability to add a family member onto your mortgage to help you out. 4. Some numbers looking at the payment shock lots of households are inevitably going to face when their two year fixes end later this year / early next. Product rates are higher by some margin on 2020 – what’s the implication for affordability assessments for those who stretched themselves last time they took a deal? I think it is going to be difficult and even more so if we see house prices drop and therefore the clients being in negative equity or close to it. I have hope that if this does start to become a problem lenders will step in to help those that are now overstretched or in negative equity such as providing a more lenient affordability calculation, or extending the terms of their loans to reduce payments and buy them time to enable property prices to recover. 5. How likely is it that households will face a payment shock like this? Or will high HPI insulate them from the worst? I think it is likely this will happen and we can all hope for the best it’s a good idea now to start planning for the worst, those savings you were going to use for a new car might now be worth keeping in the bank to pay down some of your mortgage when you come to refinance at the end of your fixed period. I don’t think high HPI will come into this as if as predicted there is a property crash and HPI declines this will only make matters more difficult. In my view someone needs to step in somewhere, whether that’s the government providing some sort of help to those who will be in hot water due to matters totally out of their control, or lenders providing some leniency with remortgaging or allowing favourable product transfers.
if you are looking to remortgage it would be prudent to look to fix as soon as you can as the rates are changing on a daily basis. If you wait a week or two you will probably have to pay a higher rate. We have seen an increase in enquiries where clients are looking to come out of an existing fixed rate now and lock in for a new 5 year period as they are concerned that when their rate expires in a year or so the new rates will be much higher. When considering this you have to ensure you compare the overall cost of changing including all fees such as the Early Repayment Charge. You then need to weigh up if it is worth changing now or waiting.