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The big problem facing people with big mortgages

Journalist: George Nixon, The Times and The Sunday Times

ended 24. August 2022

Hello, I'm working on a story for The Sunday Times about how, for the middle-class and rich people with big mortgages the rise in mortgage rates is going to be a bigger shock, or at least more money in £ terms, than the rise in energy bills. For example, on a £500,000 loan, the cheapest five-year rate in 2017 was 1.59%, and it's now 3.09%. 

Even though the balance has decreased you would see your monthly payments increase from £1,747 to £2,070, a rise of £323. 

I wondered if someone on here might be able to help put us in touch with a case study of some borrowers who have a big mortgage and whose bill might have already gone up a decent amount recently, or might do in the future? And if they'd be happy to speak to us about whether they're worried, what they might be doing to counteract rising bills, whether they regret that big old mortgage they borrowed, etc. 

Thanks!

4 responses from the Newspage community

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Jonathan Burridge
Founding Adviser at We Are Money
I have a client with £1M interest only mortgage and a number of BTL's who would be willing to have a conversation.
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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
The FCA have implemented a lot of changes since the financial crisis of 2008. Mortgages are a lot more affordable now, and customers should be able to withstand changes in interest rates. However, interest rates haven't gone up since the financial crisis, until earlier this year, and now is the real test to see if the stress tests put in place actually work. The more you borrow the bigger the increase in payments if interest rates rise. Also, if you are one of the view who have an 'interest only' mortgage; where you aren't paying back the capital but are servicing the monthly interest, a rise in interest rates will see a bigger percentage increase in your payments. A lovely, aspiration, couple purchased a beautiful Victorian semi detached house near Cheltenham last year. It was a million pound, and worth every penny. The problem was that they wanted to complete refurbish it and that would take a lot of money. They took a £500,000 interest only mortgage so they could refurbish and then refinance that debt onto their mortgage. The rate on their loan last year was 1.69% and their monthly payments were £705 per month. Fast forward 12 months and their interest rate today is 3.19% and their monthly payments have nearly doubled to £1330. I spoke with them last week and they are concerned. They are worried that the increases have not yet finished. The Bank of England is expected to increase rates next month by a further 0.5%. They are also worried about refinancing the £100,000 they have spent on making their home their own. Lenders are starting to become concerned about refinancing for debt consolidation and this will become even more constrained if, or when, we enter recession. To say my clients regret purchasing their dream home is an overstatement. They love living there and they really have improved the place. However, despite all of the caution that was advised, they are a bit shellshocked by the increase in their mortgage payments. If they need to cut back on a few things in the coming months, it's a good thing they have a beautiful home to retreat in to.
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Rhys Schofield
Brand Director at Peak Mortgages and Protection
One of our advisors had an appointment last week to review rates on offer and refresh things with a client who we've been working with since the start of the year and was looking to buy a house for around £500,000. Unfortunately what was a comfortable payment for them back in January will now be over £400 a month more expensive and now not something they feel they can afford so have dropped their budget by £150,000. Far from an ideal situation. People with a large balance are in for a shock come remortgage time. I'm personally gearing up for my fixed rate leaping up from 1.1% when it expires next year and to soften the blow I have increased my direct debit to what the payment would be at a rate of around 4%. This saves me interest in the long run because I'm paying my mortgage off quicker and when that rate does shoot up, I'll feel it slightly less because I have a lower balance. Anyone worried should probably pick up the phone to their broker and come up with a plan now rather than put it off. We're already having these conversations with some of our clients at this early stage so they can plan.
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Ashley Thomas
Director at Magni Finance
As a High Net Worth mortgage broker, we predominantly help clients with mortgages above £1m. A lot of these are looking to refinance as soon as possible to lock in a competitive rate. We have noticed that the pricing gap between retail banks and private banks have reduced, with some being very similar. The exception is the arrangement fees as private banks charge a percentage, typically 1% instead of a set fee of around £999 that is charged from retail lenders. It will be challenging for a lot of people, especially if they have stretched to the maximum. A 1% increase on a £1m loan would be £10,000 extra interest per annum. However, for the wealthy, it is not all doom and gloom. We have spoken to Hight Net Worth Individuals and Ultra High Net Worth individuals who are still positive on certain parts of the economy. Prime properties are still in strong demand with limited supply, they are not concerned on the long term pricing for properties. Also, they see opportunity to invest in other long term options such as stocks and commodities like gold. Although their mortgage interest rate will be higher, they still prefer to have one as they want to invest their money elsewhere and expect the returns on these to be higher. I have asked one of my clients if they are willing to do a case study. They have a mortgage offer for £1.25m at a rate that was secured in March at 1.78% for a 5 year fixed, but it is likely we will not complete before the offer expires. The new rate would be at least 3.16%. I will update if they are open to be used as a case study and provide comments.