One in four mortgage holders would not be able to afford a £100 increase in monthly payments and almost half would struggle if they increased by £250, Citizens Advice says
- Research from Citizens Advice highlights the risks if rates continue to rise
- One in seven mortgage holders have already reduced the necessities to save money
- Mortgage rates rose in the wake of the disastrous micro budget
- Borrowers who are nearing the end of fixed deals face a severe mortgage shock
More than a quarter of mortgage holders wouldn’t be able to afford their monthly repayments if they increased them by £100 a month, according to new research from Citizens Advice.
The organization said nearly half (45 per cent) would not be able to make their payments if they went up by £250 a month.
In September, 49 percent of Mortgage Advice holders gave Citizens Debt Advice to say they have more money going out of their finances each month than going into it.
Calculating the cost: Rising mortgage rates have caused one in seven borrowers to cut back on necessities in order to make ends meet, according to Citizens Advice.
Citizens Advice has estimated that this applies to around 11 per cent of all mortgage holders in the UK.
The stark results highlight the dangers of high mortgage rates. Average rates continue to climb above 6 percent after sharp rises over the past month.
On Sept. 23 (Mini Budget Day), the average rate for a two-year fixed-rate mortgage across all deposit sizes was 4.74 percent, according to Moneyfacts.
Just over a month later on October 28, it settled at 6.53 percent. That much higher would add £134 to the monthly payments on a £200,000 mortgage over 25 years, or an extra £1,608 per annum.
The five-year average repair is now 6.36 percent.
Experts warn of a looming subprime mortgage crisis as borrowers who set their rates two years or more ago will have entered into much cheaper deals and will see their expenses go up.
Last year, Nationwide launched a product with a rate of just 0.87 percent, with a 40 percent deposit.
At the time, TSB had a cheaper 0.84 percent offer for remortgage.
The trend is to the upside: Mortgage rates have risen sharply over the past few months as the increasing cost of borrowing has pushed up prices for homeowners
This issue is further exacerbated by a cost-of-living crisis driven in part by inflation.
The consumer price index rose 10.1 percent in the 12 months through September 2022, up from 9.9 percent in August.
One in seven mortgage holders have already cut down on essentials while one in ten has taken out high-cost credit to make ends meet, according to a Citizens Advice survey.
For mortgage holders on a negative balance sheet who are already unable to afford their borrowing payments, the numbers rise to one in four, and almost one in five are using high-cost credit.
Citizens Advice data paints a stark picture of a looming mortgage crisis if borrowers can’t pay their monthly bills.
In a blog accompanying the data, Citizens Advice principal policy director David Mendez da Costa and policy director Rachel Biddo wrote: “When people can’t afford their mortgage, one of three things happen.
They could miss mortgage payments and be late. They can cut back on basic spending on items like food and energy. Or they can use credit to bridge the gap and go deeper into debt.
Mortgage lenders need to think about how they can help people in financial difficulty through measures such as restructuring payments, deferring payments, and removing fees and surcharges.
Of these three, this is the first place where people are best protected. Mortgage lenders need to think about how they can help people in financial difficulty through measures such as restructuring payments, providing payment deferrals and removing fees and surcharges.
“But the concern is that people are not receiving this support and instead are going without necessities or going deep into debt.”
According to Costa and Bideau, the FCA and the Bank of England are currently recording the lowest level of mortgage arrears in 15 years. However, they warn that this could be a sign that people are not coming forward to seek help and risk deepening their debt or struggling without necessities.
You can contact Citizens Advice or call Adviceline (England) on 0800 144 8848 or Advicelink (Wales) on 0800 702 2020.
What to do if you need a mortgage
Borrowers who need to find a mortgage because their existing fixed-rate deal is coming to an end, or because they’ve agreed to buy a home, are urged to act but not panic..
Banks and building societies are still lending and mortgages are still being accepted with applications accepted.
However, rates change quickly, and there is no guarantee that deals will stick and won’t be replaced by mortgages that charge higher rates.
This is Money’s best mortgage rate calculator powered by L&C that can show you deals that match the value of your mortgage and property.
What if I need to re-travel?
Borrowers should compare rates, talk to a mortgage broker, and be prepared to work to secure a rate.
Anyone with a fixed-rate deal that expires within the next six to nine months should consider how much a remortgage will cost now — and consider a new deal.
Most mortgage deals allow a fee to be added to the loan and then only charged when you take it out. By doing this, borrowers can secure a rate without paying expensive arrangement fees.
What if I’m buying a house?
Those who have agreed to buy homes should also aim to lock in prices as early as possible, so they know exactly what their monthly payments will be.
Homebuyers should beware of overexerting themselves and be prepared for the possibility of home prices falling from their current high levels, due to high mortgage rates limiting people’s ability to borrow.
How to compare mortgage costs
The best way to compare mortgage costs and find the right deal for you is to talk to a good broker.
You can use our best mortgage rates calculator to show matching deals for your home value, mortgage size, term needs and flat rates.
Be aware that rates can change quickly, so the advice is that if you need a mortgage to compare rates then speak to a broker as soon as possible, so they can help you find the right mortgage for you.
> Check out the best fixed rate mortgages you can apply for