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Mortgage shock

ended 24. October 2022

With interest rates on a different plane to where they were six months ago, are you seeing more people asking to switch onto interest-only when they come to remortgage, or extend the term? And just how extreme is the remortgage shock people are experiencing? Are some people being forced to put their homes onto the market and downsize? In short, what's happening on the ground right now. Anecdotes and insights welcome. Plan to issue this at 10am so deadline is tight.

9 responses from the Newspage community

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Rob Peters
Principal at Simple Fast Mortgage
The remortgage shock is real and borrowers are faced with difficult decisions where the requirement for expert advice has never been greater. Moving to an interest only mortgage, or extending a mortgage term past the normal retirement age are not ideal solutions. These are extreme measures for extraordinary times, and when interest rates rapidly, it can certainly be labelled extraordinary. Many people are being forced to make tough decisions in order to survive 'now' and worry about 'later' later. although it is early days yet, we will no doubt see some homeowners sell up and downsize in order to keep their head above water.
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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
Some of our clients are really looking to reduce their outgoings during our review process. Although we go through a thorough budgeting plan and strip out things are aren't needed or are a much lower priority this isn't touching the sides. With housing and energy being the two main outgoings, and we can't do much about energy, they are asking us for help reducing their mortgage costs. For most customers, this means extending their mortgage term. I've had one client who has just extended their term from just over 7 years to 35 years (the max the lender would offer). They did this with the intention of making overpayments, but wanted the minimum monthly cost to be a low as possible as they were so worried about being able to heat their home and feed their family. I've also had some older clients who had a residential mortgage decide it was time to swap this for a lifetime mortgage and not have to worry about making the monthly repayments. I expect this to become more common as affordability in household budgets bites further into the winter months.
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Mike Staton
Director at Staton Mortgages
Mortgage rates have gone to scary levels, many people are making comparisons to the heights they were in in the 90s, these comparisons do not do it justice as house prices are nowhere near the levels we saw then. To put it in context, a 6% interest rate payment today is the equivalent to around 25% back then. We are literally seeing the highest like for like interest rates on record. Last week I did a remortgage for a client who was with Santander, his repayment has shot up by nearly £400, add that to his energy increase of around £200 a month, fuel increases of £150 a month and food shopping increase of £50 a month, where do they find an extra £800 per month? How is this sustainable. It’s got to a point where Prime Ministers can only afford to stay in their own property for 44 days. Things need to change and very quickly
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Riz Malik
Independent Financial Adviser at R3 Wealth
Truss & Kwatang planted Japanese knotweed in the UK housing & mortgage market which has been spreading at an alarming rate. The spike in borrowing rates shows this. Rishi (if/when crowned PM) has the weedkiller and we will find out if it works in the coming weeks. Even if it does, the damage has already been done as evidenced by Moody's negative outlook for the UK. When it comes to remortgaging, a lot of people are still sitting on their hands praying things will get better. 2023 is going to be a very turbulent year. Lenders know it, brokers know it and the person on the street knows it.
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Bob Singh
Founder at Chess Mortgages
The payment shock is real. With rates jumping 300% in some cases the rise in mortgage payments for both residential and Buy to Let will leave everyone worse off. Whilst tracker rates and discounted rates are in vogue to dampen the shock the other option is to go onto an interest only mortgage! This should be avoided as one gets used to lower payments and the loan may freeze and not repayment not addressed till the end of the mortgage term! Interest only mortgages aren’t a given. Lenders have strict rules and qualification criteria around this. Some require a minimum income or minimum Equity and some some have a maximum Loan To Value. Interest only should be an interim measure and not a permanent solution!
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Graham Cox
Director at Bridging Hub
Mortgage affordability has tightened considerably in the past month. When interest rates were dirt cheap, self-employed applicants could borrow 4.5 x income quite easily as long as they didn't have excessive outgoings or credit commitments. Now I'm running lenders affordability calculators for directors and contractors with very good incomes, great credit scores and minimal debts, and sometimes they can only borrow 3 to 3.5 times their income. It's quite shocking. House price falls are a stone cold certainty in my opinion. In fact they are likely already happening at the coal-face, it's just we won't see them widely reported until next year once they show up on the land registry figures. Anyone remortgaging now is looking at an interest rate 3-4 x higher than what they paid previously. Many of our clients are shocked how much extra a month that equates to, because borrowing amounts are so high.
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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
Many mortgage reviews are focused on monthly costs currently, with good reason, many people are coming off fixed rates of 2 or 3 percent and into a world of nearly 6% fixed rates - that's a heck of a jump by anyone's standards. There are a few things we discuss to try and manage that jump; it could be to extend the term of a repayment mortgage, or maybe look at a variable rate deal rather than simply default to a fixed rate (at present a tracker could be 2.95% but the equivalent fix be 5.78%, so a huge difference). One area that is more problematic is moving all or part of the mortgage onto an interest only basis. Not only have you got to look carefully at how the interest only element will ultimately get paid off many lenders have set the bar high to qualify for these mortgages; minimum income levels, minimum property values, minimum levels of equity in the property are all barriers to look at if using 'sale of property' as the ultimate repayment vehicle. If the plan is to use pension tax-free cash, or other investments/savings these also need to be provable at the required level to repay the debt, which many people simply do not have.
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Dan Osman
Head of Later Life Lending (Age 55+) at UK Moneyman
At the older borrower end of the market we are seeing a lot of people feeling forced jnto lifetime mortgage earlier than previously. Many lenders of retirement interest only mortgages have withdrawn products or tightened criteria. This means that the phased approach of a fixed term over 50s mortgage or similar leading to a lifetime mortgage later on for those without enough income to support a long term RIO is much harder to achieve. We are also seeing people less willing or capable to fully service the interest on lifetime mortgages at the higher rates. Ultimately even a partial payment is beneficial but we are going to see more erosion of borrowers' equity until rates fall
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Ashley Thomas
Director at Magni Finance
The rapid speed with the increase in mortgage rates has certainly shocked a lot of borrowers. With the fixed rate pricing very high, I had had a lot of clients in the last couple of weeks seriously consider a tracker rate as they are much lower, around 2-3% below fixed rates. I have had clients who have got second homes or were considering having second property/ holiday homes reconsider with the current environment.