One in ten homeowners have struggled meeting their mortgage repayments over the past year, according to government figures.
The government’s Household Resilience Study said this has more than doubled from the 4% recorded in 2019 to 2020.
The 10% figure for 2020/21 also does not include the 2% of homeowners who are in arrears.
The good news for people who are struggling with their mortgage repayments is that several options are available to bring down the amount you pay per month.
And any of the options that are available will have a cost – such as extending how long you pay your mortgage for.
But they might buy you some breathing space and let you get your finances back in order.
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If you are struggling now, one of the most common ways to bring down monthly mortgage costs – overpayment – is clearly not an option.
This is where homeowners temporarily agree to pay their lender more than the agreed interest rate, therefore reducing how much is repaid after that – or how long you repay it for.
But many options are still available – and well worth exploring.
1) Avoid standard variable rates (SVRs)
This is another way of saying ‘shop around’.
When your mortgage term ends – normally two or five years – you will fall onto your lender’s SVR if you do nothing.
SVR rates, also called ‘follow-on rates’ are higher than normal mortgage rates, and are basically a tax on doing nothing.
For example, the cheapest homeloan rate at the moment is 1.09%, for a two-year fixed deal from HSBC.
But if you don’t remortgage, this becomes a rate of 3.54% when the two years are up.
If you are on an SVR, the wise thing to do is remortgage to another, cheaper, deal if you can.
See our guide on how to remortgage, here.
2) Remortgage now if you can
Now is an exceptionally good time to remortgage, as mortgage rates are currently extremely low.
This is because the price of mortgages partly reflects the Bank of England base rate – currently at record lows of 0.1%.
However, Bank of England governor Andrew Bailey warned recently that this rate could rise next year to help offset rising inflation.
You don’t even need to be right at the end of your mortgage term to agree another mortgage – most lenders will let you do it six months before your current contract ends.
3) Take a payment holiday
The profile of mortgage holidays rose hugely during the pandemic.
These were – as the name suggests – a temporary pause on payments if a household’s income had taken a hit by the spread of Covid-19.
The Financial Conduct Authority (FCA) regulator ordered lenders to offer these during the worst of the pandemic, but lenders did offer them before too – so don’t be afraid to ask.
4) Extend your repayment term
You can lower how much you pay per month by extending how long you pay your mortgage for.
While this does mean you are tied into payments for a longer time, it might make financial sense to do it – and get yourself some wiggle room now.
5) Change to interest-only payments
Most homeowners are on repayment mortgages – where you pay back the loan and interest every month.
But a cheaper option is an interest-only mortgage, where – as you’ve probably guessed – you just pay the interest on the loan.
This is not going to be the right option for many, as it means when your mortgage term is up you still owe your lender a large sum of money.
They will want that money back – so you will have to have alternative cash, such as an inheritance or expected investment returns, or you will have to hand over your house.
The best thing is to speak to your lender or mortgage broker about your options.
If you need financial advice please contact Citizens Advice on 0808 223 1133 or using their webform.
You can get advice from Stepchange if you are in debt, here.
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