The experts’ advice on how to deal with the mortgage crisis.

Four industry experts explain to Rebecca Goodman how to deal with the rising cost of borrowing, regardless of whether you’re a first-time buyer or your fixed-term mortgage is about to expire.

Millions of homeowners and prospective buyers have been alarmed by this week’s spike in interest rates, even after the steps proposed by chancellor Jeremy Hunt.

The cost of borrowing is increasing once more, and this time it coincides with a general increase in costs, including those for everything from food and clothing to energy and transportation. Due to the persistently high inflation rate, many borrowers would not be able to afford the increasing borrowing costs, especially those who are already in financial difficulty.

According to data from Moneyfacts, the average rate for a standard variable mortgage (SVR) is currently 7.52 percent, a considerable increase from the average of 4.91 percent one year ago and 4.41 percent in June 2022. The rate increase of 0.5 percentage points on the current average SVR will increase annual loan repayments by £1,576 based on a 25-term mortgage of £200,000.

Mark Harris, chief executive of mortgage broker SPF Private Clients, notes that this means a borrower with a 25-year, £250,000 mortgage at a rate of 4.5 percent will now see that climb to 5 percent, with monthly payments increasing from £1,390 to £1,461. However, if a borrower had a £250,000 tracker mortgage set at 1% over the base rate after 13 rate increases, their monthly payments would have increased by 70% from £943 in December 2021 to £1,611.

Borrowers have every right to be concerned, but what can you do if your prices have increased and you have a standard or variable mortgage, a fixed-term mortgage that is due to expire, or are seeking to move up the housing ladder? We sought counsel from the professionals.

“Secure your position now because prices aren’t likely to drop”

According to Karen Noye, a mortgage expert at Quilter, this is “going to be a difficult time for all” since high interest rates drain the economy of money and the BoE has clearly felt the need to act quickly and forcefully in an effort to try and help lower inflation.

“If you own a home or are in the market to buy one, the news over the past few weeks will have been nothing short of terrifying,” she said. However, there are things that can be done right away to lessen the impact on mortgage holders over the coming few months.

“If your fixed-rate agreement expires in six months or less, contact your mortgage broker or lender right away to check into locking in a new offer. In the event that rates decline before the new mortgage matures, many lenders will permit borrowers to modify the programme.

There is no way to predict the future, but she advised locking in prices now because they are not likely to drop in the near future.

Another way she recommends borrowers might help themselves is by having the necessary papers available in advance.

“Do whatever papers you are asked to supply as soon as you can because the market is shifting so quickly that items that are available now might not be there tomorrow. If your paperwork isn’t in place and an application hasn’t been submitted for approval, the contract will be lost forever, the source continues.

Another choice is selecting a longer mortgage term. Even though it may seem like a long period of time, choosing a mortgage with a longer term will help you pay less each month.

“A longer term reduces your monthly expenses even though you will pay more in interest over the course of the loan. It doesn’t have to be forever once your offer expires because you can choose to remortgage to a shorter term.

Additionally, Noye cautions borrowers against hiding their heads in the sand.

“As with many things in life, being proactive can help you weather the storm and get some extra assistance from your lender,” she said. Work out exactly how much you can afford to repay before calling them to explain your circumstance.

You can manage your finances with the help of free expert guidance and budgeting tools. You can organise your finances with the assistance of Citizens Advice and nonprofits that specialise in debt management. Inform your lender if you’ve looked for assistance because doing so demonstrates your commitment to repaying your debt and may prevent future repossession orders.

If you’re struggling to pay your mortgage, speak up.

Anyone with a regular or tracker mortgage would see their payments rise as a result of the anticipated 0.5% rise this week, according to Joe Stallard, director and advisor at House and Holiday Home Mortgages Ltd.

Lenders will inform impacted borrowers of changes to payments, he added, adding that anyone having trouble should contact their lender or broker as a first point of call.

“If you’re having trouble paying your mortgage, don’t suffer alone. Speak with your lender or broker; there might be some things you can do to make the situation easier. If you’re having trouble, you don’t have to deal with it alone. In many ways, it’s also better to ignore all the opinions right now because those who are making forecasts are simply making educated guesses, just like the rest of us.

He suggests meeting with a broker and ensuring that “you’ve got a good overview of how you want to proceed, and you have all the relevant documentation together so you’re ready if things are still changing really fast.”

Think ahead and act right now.

The latest rate increase had already been factored into fixed-rate mortgages, according to Mark Harris, chief executive of mortgage broker SPF Private Clients. However, recent rate nudges upward have left many borrowers, particularly those due to switch off of relatively inexpensive products, in for a real payment shock.

He encourages customers to “plan ahead as much as possible and take action now” by reserving rooms up to six months in advance. He claimed it should be feasible to choose a less expensive arrangement if rates actually decrease over this period.

There are more strategies to position oneself for success in the crisis.

If you don’t need to refinance for a year or two, he advised, strengthen your financial situation by paying off other debt, reducing wasteful spending, and thinking about paying off your mortgage early if you can to ease the pain later on.

“This most recent rate increase may cause those who are considering purchasing a home to find their budget significantly limited. Anecdotal data, however, shows that buyers are recognising possibilities and hard-bargaining on price, while sellers who want a quick and profitable sale must be realistic about what they can achieve.

“Lenders don’t want to repossess properties, but they do need to know if borrowers are having difficulties so that they can work with you to find a solution,” he stated in reference to people who are having trouble making their mortgage payments.

These “may include extending the term (if you are on a repayment deal), switching all or a portion of your mortgage onto interest only for a time, or perhaps taking a mortgage holiday until your financial situation improves.”

There are 15 programmes available for borrowers in need.

If prices have risen too much as a result of interest rate increases, first-time buyers have a variety of options, according to mortgage specialist Polly Gilbert of broker Tembo.

Talking to a mortgage broker, advises Gilbert, is the most crucial step.

“Specialist mortgages are very difficult to navigate online, and there are many options that many customers aren’t even aware of when they’re looking,” she added. There is no upfront price for the majority of mortgage companies when you are simply considering your alternatives, so there is no expense to do this and it is quite beneficial.

She draws attention to the fact that there are specialised mortgages available, such as those for people in particular professions like teachers or nurses, which can enable a borrower to take on a higher amount than with a conventional mortgage.

Gilbert also suggests extending a mortgage because it can make it more affordable.

“Traditionally, a mortgage was paid off over a period of 25 years, but since individuals have been working longer and the retirement age has gone up, so has the mortgage duration.

“By extending your term to 35 years, you can pay less each month because you’ll be paying back the loan over a longer period of time. The drawback is that you will end up paying more interest as the loan term lengthens.

“However, if your financial situation improves in the future, you may always remortgage and shorten the length of your mortgage to pay it off sooner. If you were able to, you may also choose to make voluntary overpayments, she continues.

Gilbert notes that there are over 15 different buying plans that may be helpful for those looking to climb the housing ladder if expenditures have gotten out of hand. These include shared ownership, “deposit unlock,” and “own new” for newly constructed residences.