Homeowners raid their savings and pensions to pay rising mortgage bills
- Mortgage rates are slowly falling, but remain high compared to recent years.
- Many homeowners are squandering their cash to meet higher payments.
Homeowners hit by rising mortgage rates are raiding their savings and cutting their pension contributions, new research shows.
Mortgage rates have been rising following successive increases in the Bank of England’s base rate over the past two years.
The pace of these mortgage increases has begun to slow, and many lenders now offer five-year mortgage loans with less than 5 percent interest.
But many homeowners are still facing massive increases in the price they pay for their mortgages, forcing them to dip into their savings to get by.
Mortgage loan increases: Rising mortgage prices are putting many homeowners in a difficult situation, according to KPMG study
Because most mortgages in the UK have fixed rates for two or five years, most will only feel the impact of higher interest costs when it comes time to remortgage.
Although rates are now falling, they are likely to remain much higher than what many people on fixed rates currently pay.
Nearly one in five (18 percent) homeowners have had to take money out of their savings to make mortgage payments this month, according to a survey by accountants KPMG.
Another 25 percent of homeowners said they were considering doing the same.
One in ten (11 per cent) homeowners said they had cut their pension contributions to have money to pay off mortgage loans, while 8 per cent had sold their homes to move to one with a higher mortgage. cheap.
Some homeowners (16 per cent) have changed their mortgage from principal payment to interest only, which is cheaper in the short term as it means homeowners pay only the interest on the loan.
However, it is much more expensive in the long term as interest continues to be charged on the entire balance and homeowners will need a plan to repay the loan when the mortgage term ends.
Others (12 percent) have chosen to extend the term of their mortgage, which also reduces monthly payments, although again increases the total amount owed to the lender.
Linda Ellett, head of consumer, retail and leisure markets at KPMG UK, said: “Inevitably, rising household budgets and savings used to pay the mortgage, or rising rental costs, will continue to cause consumers to “consumers spend less money elsewhere in the economy. which will continue to challenge retailers, brands and leisure companies.”
What is happening with mortgage rates?
The typical five-year fixed mortgage rate on the market is now 5.99 per cent, according to financial experts Moneyfacts.
This figure is down from a peak of 6.33 percent in mid-July.
Major mortgage lenders have been cutting rates after the Bank of England froze the base rate at 5.25 per cent last week.
Nationwide currently hosts the cheapest five-year fixed rate product priced at 4.94 per cent, but it will be undercut by Halifax’s 4.93 per cent rate when it launches next week.
However, the cheapest rates are generally only available to those with at least 40 per cent equity in their home, or a 40 per cent deposit.
And due to the high cost of living, some borrowers may find themselves in default or unable to pass lenders’ affordability checks, which could leave them with their lender’s more expensive standard variable rate.
What to do if you need a mortgage
Borrowers who need to find a mortgage because their current fixed-rate agreement is coming to an end, or because they have agreed to purchase a home, should explore their options as soon as possible.
This is Money’s best mortgage rate calculator, powered by L&C, which can show you offers that match the value of your mortgage and your property.
What happens if I need to remortgage?
Borrowers should compare rates and speak to a mortgage broker and be prepared to take action to lock in a rate.
Anyone with a fixed rate deal ending within the next six to nine months should look at how much it would cost to remortgage now and consider striking a new deal.
Most mortgage agreements allow fees to be added to the loan and then only charged when you take out. By doing this, borrowers can lock in a rate without paying expensive origination fees.
What happens if I am buying a house?
Those with agreed-upon home purchases should also try to lock in rates as early as possible, so they know exactly what their monthly payments will be.
Homebuyers should be careful not to overextend themselves and be prepared for the possibility that home prices may fall from their current high levels as higher mortgage rates limit 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 rate calculator to show you deals that match your home value, mortgage size, term, and fixed rate needs.
However, be aware that rates can change quickly, so the advice is that if you need a mortgage, compare rates and then speak to a broker as soon as possible, so they can help you find the right mortgage for you. .
> Check the best fixed rate mortgages that you can request