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Sunday Times middle class borrower squeeze

ended 24. August 2022

A Sunday Times journalist is writing a piece for the weekend on how middle-class, higher earning borrowers, due to soaring house prices and ultra-low interest rates, have been borrowing more to get the properties they desire. This has been ok in a time of stupidly low rates, but when these people come to the end of their fix, rising rates will see their monthly payments  jump dramatically. She's keen to hear from brokers on this, e.g.

  • Do you have clients contacting you out of the blue because they are worried about the financial pain they're staring at further down the line?
  • Are your clients doing anything financially to deal with the prospect of significantly larger mortgage payments in the future, e.g. taking their kids out of private school, taking out seconds to consolidate unsecured debt and reduce outgoings?
  • Are clients doing anything else in terms of adjusting their wider financial plans, e.g. selling up the dream property and downsizing to a more affordable one? Any examples would be most welcome please, and the more specific, the better.

Deadline is the end of today (Weds) - 6pm.

8 responses from the Newspage community

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Imran Hussain
Director at Harmony Financial Services
I have been fortunate to work with clients who did not try and push the envelope when it comes to borrowing, as anyone who has overborrowed will now be paying for their overexuberance with rates rising quicker than Apollo 13. There will be those who are looking at stripping back on super luxuries such as holding off the 5th holiday of the year or delaying the purchase of the new Tesla for now, but anyone who was just flying blind thinking rates will be low forever are in for a shock considering the lowest rates on the market start with at around 3%. Worse still, no one knows what the market may be like when the current crop of 2, 3 and 5 year fixes come to an end but with inflation predicted to rise into the late teens and the possibility of the base rate being over 5%, everyone is in for a rough ride for the next 18-24 months. The overleveraged will experience the pain in stereo.
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Rob Peters
Principal at Simple Fast Mortgage
It was all plain sailing when interest rates were incredibly low, and they were low for such a sustained period of time that many forgot (or had never experienced in their lifetime) that interest rates can rise much higher. But they can. Now that the the sun has set on the last economic cycle of cheap borrowing, it's likely those who carry highly leveraged debt who will feel the pain first. Specifically, we're talking about borrowers who stretched their finances to the absolute maximum to get that extra bedroom, bigger garden or school catchment area. These borrowers used a mortgage lender who would allow a higher amount of borrowing, perhaps also factoring in overtime and bonuses, or income from a newly formed company, into their mortgage affordability test. With a recession looming, overtime could be cut back, bonuses may stop, and new companies often fail. Adding in the current inflationary situation with fuel, energy and food prices rocketing and all of sudden the money doesn't quite stretch as far as it needs to. This issue doesn't just affect those on higher incomes and higher borrowing, it potentially affects everyone who has leveraged themselves highly with debt. Particularly those whose income is less stable, or wider circumstances could change. Many will have taken a 5-year fixed rate in order to access higher levels of mortgage debt, and this fixed payment should provide security for the the short-term. For those borrowers who are aware their costs are going to increase at the end of their fixed rate period, it will feel like watching a distant train approach when you're tied to the track rails.
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Rhys Schofield
Brand Director at Peak Mortgages and Protection
Only this week, I've had three sets of long term professional clients reach out to me. These are headteachers and doctors we are talking about, not people you would typically think would be struggling yet they are. Their bills are going through the roof, childcare is still a massive expense and they haven't had a lot of spare cash. The cost of living crisis may well push them over the edge if they bury their heads in the sand. In order to make ends meet, we are going to have to consolidate their unsecured borrowing onto the mortgage. It's certainly not ideal but we have managed to bring their outgoings down by several hundred pounds a month. We always explain the risks of debt consolidation to a client but, when backed into a corner, it's many people's least worst option to keep their heads above water.
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Jamie Lennox
Director at Dimora Mortgages
We've certainly seen a handful of emails drop into our inbox of clients wanting to discuss what potential impact they're going to face in the future. We're coming off the back of a long period where house prices have shot up and many buyers have stretched themselves financially to get that dream house. These people will face a large increase in their payments when their deals end and some serious rate shock. This has also led to an increase in clients looking to consolidate unsecured borrowing onto their mortgage, even while they are in the middle of a fixed rate. Many are doing it in desperation to try and save money on a monthly basis without factoring in the overall increased pay back in the long run. But thinking long-term is an option many people who have borrowed to the hilt simply may not have.
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Dean Esnard
Director at Magni Finance
Higher earners with existing large mortgages will be seeing the highest increases in their monthly costs. As a high net worth broker, we are noticing more clients looking to restructure their existing mortgages when their current deal ends. One way this can be done is by switching a capital repayment mortgage to interest only, significantly reducing the monthly payments. As an example, a £1 million loan on capital repayment over a 25-year term with an interest rate of 3.5% would cost £5056 per month. On interest-only, this would only cost £2916 per month. Interest-only is generally only available to borrowers earning more than £100,000 per annum with at least 25% equity in their property. With some private banks, wealthier clients can borrow up to 90% of the property value on interest only. Another way our clients have been reducing costs is by leveraging existing assets. If there's a second home or buy-to-let with sufficient equity, there is something with the potential to lend against. If one asset is unencumbered and another has a large loan secured against it, it can be beneficial to spread the debt against both to reduce the overall loan to value and subsequently interest rates available.
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Robert Payne
Director at Langley House Mortgages
Those who have borrowed up to their maximum capacity on the lowest interest rates in history are facing a financial thunderstorm when their existing rate expires. Based on the current market, we are seeing average monthly payments go up between two to three hundred pounds, which combined with the worrying levels of inflation and cost of living crisis, could leave many borrowers struggling. We have seen an increase in enquiries from existing customers who are part way through a fixed rate wanting to know if they have any options to protect themselves for the future and we have also had more questions around secured loans, too. Last week I had a call from a client who took out a 5-year fixed rate on his buy to let property last year, wanting to know what the early repayment charges are as he now wanted to sell it due to financial pressure. Unfortunately they were very high as he was in the first year of the agreement.
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Alastair Hoyne
CEO, Finanze Capital at Finanze Capital
I have had a lot of clients from all backgrounds contact me in the last few weeks wanting to get off a variable rate they have been on for some time as they are so worried rates will increase to the point the monthly payments are unaffordable. I have also had clients sell their lower yielding properties within their portfolios to provide a financial cushion for the coming year. I am seeing a lot more clients who had planned to refinance to provide a larger deposit for their children’s first home now instead refer their children onto myself for a larger mortgage as the parents do not want to overstretch themselves out of generosity.
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Paul Neal
Mortgages & Equity Release Advisor at First Choice Financial Services
We are finding more and more clients trying to protect themselves as much as possible from the rises. Many looking at paying substantial early repayment charges just to secure a new deal. Also we are finding many of our clients that are later in life taking out equity release to help bridge the gap in rising costs