Mortgages and cost of living increase - what should borrowers coming to the end of a fixed rate do (if they are worried about affordability checks etc)

Journalist: Samantha Downes, Currently at the I (business editing some Sundays (freelance) and Mortgage Solutions

ended 31. May 2022

Hi

I'm writing a feature for readers who are worried about their mortgage - they may be coming up to the end of a fixed rate period and maybe need reassurance or advice because their bills have gone up.

These might be people who would have passed the strict affordability checks introduced back in 2014. I know lending criteria has eased a bit since then but now with food prices going up 20% and energy bills increasing what should a borrower about to remortgage need to do - if anything.

For our main feature - so I need to file this evening!

Thanks in advance

8 responses from the Newspage community

It's a worrying time for many people as everything rises in price, yet our wages are flatlining. Anyone coming towards the end of their current deal should be getting in touch with a good quality broker and talking through their options. If they aren't in a position to remortgage to a new lender, then consider a product switch with their current lender, as most of them don't bother with any affordability checks as long as nothing about the loan is changing. In some cases, clients may want to consider consolidating debt and extending their mortgage term to free up disposable income and reduce outgoings. It is not an ideal scenario but if that's what it will take to get through the following year, then so be it. There's no point in burying heads in the sand, as that only leads to problems down the line, and whilst consolidating debt and extending the term of your mortgage is not usually the best thing to do, we have to consider the sustainability if prices and energy costs continue to rise. It's better to have a mortgage for an extra few years and pay additional interest than to be forced into a position of having to sell because your circumstances are no longer sustainable. It's a balancing act to determine the right course of action. However, it's something that I see daily, and the only way to know what the options and implications are for borrowers is to sit down with a broker and look at all available options."
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Budgeting is key heading into the period prior to remortgaging. Now more than ever, lenders will be looking for customers who are in financial distress with the cost of living crisis. They will be taking a closer look at people who are perhaps now utilising more and more unsecured credit to cover the cost of everyday living. Ultimately this could influence a lender's decision on if they want to take this mortgage on. Thankfully, if a new lender isn't prepared to provide a new mortgage to someone, their existing lender will likely offer the option of a product transfer. This will allow customers who are unable to switch lenders to secure a new rate, although this may not be the cheapest available on the market and therefore it's important to speak to an expert to explore all the options available."
Borrowers need to plan ahead. There are several lenders whose mortgage offers are valid for six months. It can take a month for an offer to be agreed, so, borrowers whose rates are ending this year could be securing a rate now that may not be available in 3 months or so. If there are expensive credit commitments like credit cards or personal loans, could there be value in raising more money on the mortgage and repaying them. There are considerations that need to be thought over and discussed, but, an independent mortgage adviser will discuss these. If there are unsecured debts around, can the borrower focus on these higher charging commitments and pay them down or off, ahead of their remortgage. Don't discount the existing lender, who may offer competitive products and some lenders offer bespoke rates for their customer, so, start there. Again, an independent mortgage adviser will cover this option off. The end of a special rate is a opportunity to review the mortgage arrangements so, mortgage contract term, new rate, method of repayment can all be revisited to make the mortgage fit for purpose based upon today's circumstances and future needs.
If you're coming to the end of your fixed rate in the next 4 months or so, now is the time to start talking to your broker. Affordability has not changed drastically yet, but the sooner you can get yourself locked into a new fixed rate, potentially the more money you can save. If Covid has not been kind to you and you have struggled and aren't eligible for a remortgage, don't panic. Most lenders will allow you to do a product transfer, remaining with them on a new fixed rate and they do this with no affordability checks. The early bird catches the worm."
Most borrowers complete product transfers these days and stick with their lender when their fixed or tracker rates come to an end. Homeowners are likely to be offered a new deal as long as they are not in arrears and they have not missed any repayments. We are getting more calls from people worried about rising rates, and they want to secure new deals because they expect rates to go up over the coming months. We have noticed more enquires from people who have tried to borrow more money for debt consolidation or home improvements as part of the remortgage process, but they are being told they do not meet their exising lender's affordability rules. Some lenders are doing more to offer mortgages to borrowers who might have taken a financial hit over the last few years. Nationwide recently changed its acceptance criteria and increased its maximum income multiple to 6.5 times salary when borrowers remortgage to the society, providing they do a like for like remortgage with no additional borrowing."
The point is not to worry whilst burying your head. At the earliest opportunity, consumers who are worried need to get on Google, search for mortgage brokers near them and pick up the phone to whoever has the best reviews. Brokers make a living from helping people just like them with these exact issues. It could be that they find clients a new deal elsewhere, or they may suggest staying put and taking a new deal with the existing lender. Plus some brokers even have free beer and office puppies to play with.
The most important thing for borrowers concerned about remortgaging to do is not to panic. Here are three reasons why. 1) There are high street mortgage lenders available now who will offer up to 6.5 times income for a like-for like remortgage. Normally, restricted to 4.5 or 5 times income, this is great news for remortgagers. 2) Although the cost of living has increased significantly, the good news is that many lenders automatically factor an average amount into their affordability assessments. So although a mortgage adviser will assess the overall circumstances, there may be no need to provide exact utility bill figures to a mortgage lender. 3) In most cases, the best overall remortgage deal involves moving to a new mortgage provider. But if affordability is an issue, there is always the option to stay with the current mortgage lender, which means no new affordability assessment is required.
BUDGET, BUDGET, BUDGET. If you are worried about affordability, have a look at what loans and finance you currently have in place. Can any of them be cleared prior to remortgaging as lenders will be looking at unsecured debts more than ever before to see if borrowers are living within their means. Seeking expert advice is more important than ever before.