Remortgaging as BoE announces it expects 40% of borrowers to be paying more in the next year

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

ended 14. July 2022

As the BoE admitted 40% of mortgage borrowers will see their payments go up. I'm looking atremortgages, are brokers having a hard time placing returning clients whose circumstances haven’t changed?

 

8 responses from the Newspage community

We're not having a hard time placing clients with new leaders because the stress tests used prior to their first mortgage have meant most borrowers fit current lending affordability rules. As an aside, perhaps it was a reason to have kept the stress test rather than removed it. The problem facing borrowers is that because of a decade of artificially low rates, people have become accustomed to remortgaging and seeing their payments and interest rates reduce; those days are over. It's a shock to their systems simultaneously as everything else is rising in price. It's particularly jarring for those previously new borrowers about to come to the end of their very first fixed-rate product, whether that was for 2 or 5 years. Many first-time buyers took mortgages with either a 5% or 10% deposit, thinking when their first deal was up, they'd be quids in as their next rate would be lower. Instead, they will find that they're all on the up, and the mortgage payment will rise in many cases. Many people forget that we operate in a mortgage and property market. Markets rise and fall; they can treat you well and quickly turn against you. However, many consumers think it's unfair as they often expect things to always go in their favour, even though there is always a risk from the outset. It's a peculiar symptom that many people consistently overestimate the upside at the same time as dismissing potential downsides. This is one wake-up call many do not want to face.
I am finding clients who are keeping an eye on everything going on in the world are aware they are likely to be paying more when the current fix deal comes to an end as the previous decade of low rates has well and truly come to an end and now more than ever important to seek advice as I am personally finding some clients who circumstances have changed with one partner no longer working unable to move to another lender due to affordability so they only viable option is to then stay with their current lender and take a product transfer.
At the moment many people are getting an unpleasant surprise when they come off their 1.24% fixed rate from a few years ago and get told the very best deal now starts with a 3. I've not yet found this is a problem getting them a new deal, the lenders are quite sanguine with the situation, but clients are the ones in a bit of a panic at the extra few hundred quid they have to pay towards the mortgage. Of course, there are a few things that could potentially be looked at to help, such as extending the term of a repayment mortgage, to help manage that cost increase, but this is best looked at by a professional motgage broker on a case-by-case basis, there is not a one-size-fits-all fix.
We're having no issues placing clients but rates are increasing rapidly and even waiting a week or 2 can cost clients thousands of pounds in extra interest. Customers need to be talking to brokers as early as possible to try to secure rates. My simple advice to anyone that us worried? You should pick up the phone to a broker today.
For those looking to remortgage now, it is impossible to get a similar or better rate than they currently have. I have had a lot of clients who have had their rates more than double. It doesn't surprise me that 40% will see their payments go up next year, I think it may be higher and it will continue to increase as borrowers come off existing fixed rates in the future. Those who locked their mortgages at a 5 year fixed rate last year at less than 1% will be feeling a huge sense of relief with the current rates.
The best time to review remortgage options was six months ago. The second-best time to review remortgage options is right now. It's no secret both the cost of living and interest rates have increased significantly, and that this has an affect on mortgage affordability for borrowers. However, the historic way in which mortgage lenders stress-tested affordability means that (thankfully), most borrowers are still able to comfortably comfortably an existing debt. Ultimately, today's increased costs were factored into the affordability assessment made when they first took the mortgage. But that's not all the good news. Some mortgage lenders are proactively looking at ways to assist those remortgaging. For instance, NatWest has extended their mortgage product transfer window to six months meaning borrowers can 'lock in' todays rates much earlier. Nationwide is allowing those remortgaging to borrow up to 6.45 times their income on a like-for-like remortgage. This is clear message they are happy to help as have been able to afford it until now, we're happy to help. I expect the market to further adapt to support borrowers.
Whilst I always advise my clients that the downside of a fixed rate is the potential for a shock at the other end, this is the biggest jump we've seen for some time so it's can still come as a huge surpise when it comes to reviewing the options available to them. The other issue is that lenders are factoring in rises in the cost of living into their affordability calculators so we can have a case where the clients income is exactly the same but the lenders are suggesting that they can no longer afford the mortgage. This combined with the general increase in the cost of living is really worrying and will have a huge impact on many families and households.
IT is a growing concern where the mortgage market is going, affordability keeps decreasing because of the cost of living crisis, products especially for lower LTV's increased almost 3 times. Definitely interesting and worrying times ahead. The main question is will BOE increase rates to required level of over 6%.