A recent hike in the standard variable rate (SVR) of interest for an estimated 400,000 Santander mortgage borrowers has signalled lenders intents to balance the books and has underlined that there is now a general trend towards rate rises. The bank’s increase of rate from 4.24% to 4.74% followed similar rises by Bank of Ireland, Halifax and Royal Bank of Scotland’s One Account. The danger is that many of the targeted homeowners have little or no equity and are unable to switch deals, inevitably piling on the misery for those in difficulty.
Housing experts are now warning that this upwards movement in SVR will result in an increase of repossessions. Repossessions climbed steeply in 2009 but levelled off at about 36,000, even though mortgage arrears got worse. This was because lenders’ generous policies helped prevent a number of borrowers in serious arrears from actually progressing to full-blown repossession. Now it would seem that this tolerance is coming to an end.
In the economic recession of the nineties, repossessions reached 100,000 per year. Hopefully, that peak will not be repeated but the Council of Mortgage Lenders (CML) says that there are currently 240,000 borrowers in arrears and that those owing more than 10% of the mortgage balance has doubled to 28,000 since 2008. Santander’s 0.5 rate increase, that will take effect from October, means that a borrower with a loan of £150,000, over a 25 year term, will pay an extra £44 per month.
So what’s the experts’ advice for those who are in danger of falling behind on their mortgage payments? In a nutshell - act quickly and try to switch to a better rate mortgage. Central to this action is the question of how much equity do you have in your home? If you have a reasonable amount of equity (20% or more), then if you’re paying an interest rate of 4.5% or more, the chances are, you’re paying too much. There are many fixed rate or tracker deals out there, which come with lower rates. Speak to an independent mortgage broker about the options. Another solution would be to extend the term of the loan – the payments will become more manageable, but you’ll end up paying more in the long term. If all else fails – selling the house may be the only sensible option left – maybe you genuinely can’t afford it after all. Don’t wait for the bank to step in and sell it for an amount that is often well under the current market rate.
Sources: thisismoney.co.uk, cml.org.uk (image courtesy of totalmortgage.com)