Mortgage Crisis: Tens of Thousands of Homeowners at Risk of Losing Their Homes
The UK is facing a mortgage crisis, with tens of thousands of homeowners struggling to keep up with their mortgage payments. According to UK Finance, the number of mortgaged properties being repossessed in the UK has seen a significant 36% increase in the first quarter of 2024, with 870 properties being repossessed between January and March 2024.
Further, there were 96,580 homeowner mortgages in arrears of 2.5% or more of the outstanding balance, representing a 3% increase from the previous quarter, according to mortgage advisors Mojo Mortgages.
Within this group, 32,470 mortgages were in the most severe bracket, with arrears exceeding 10% of the balance, marking a 6% increase compared to the previous quarter, it said.
The cost of living crisis and rising household bills have been cited as the primary factors driving this trend.
Mojo Mortgages said that increased mortgage rates, driven by base rate increases from the Bank of England (BoE), have also played a major role.
After analysing its internal data, the company said it had found that the average mortgage rate when remortgaging in April 2022 was 1.78%. However, in April 2024, the average mortgage rate soared to 5.33%.
In an effort to tame high inflation, the BoE has raised the base rate from 0.1% in late 2021 to the current 5.25%, which has resulted in mortgage rates increasing over the past couple of years.
To put this into perspective:
For a £250,000 mortgage over 20 years, the monthly payment in April was £1,238. Fast forward to April 2024, and the same mortgage would now cost £1,695 per month - an increase of £457 per month. That’s an extra: £5,484 over a year. £10,968 over a two-year fixed-rate term. £16,452 over a three-year fixed-rate term. £27,420 over a five-year fixed-rate term.
The combination of higher mortgage costs and the broader cost-of-living pressures has, unfortunately, put many mortgage borrowers at risk of losing their homes.
Mortgage experts share three tips for those struggling with their mortgage payments:
- Check to see if you’re on the standard variable rate (SVR).
- If your current deal is ending within the next six months and you’re worried about high rates, look into remortgaging options now.
- If you’ve remortgaged recently but still struggling with your mortgage payments, speak to your lender.
“The sudden rise in ultra-long mortgages is a potential concern for the hundreds of thousands of homeowners that have burdened themselves with terms extending into the retirement age.” - Praven Subbramoney, Chief Lending Officer at Nottingham Building Society
One way to reduce the term of your mortgage is by making overpayments.
If you had a £100,000 mortgage, which was set to run for 25 years at a mortgage rate of 4.5 per cent, then overpaying by £100 a month would reduce the term by six years. The overpayment would also save you £18,000 in interest over the life of the mortgage.
It’s essential for homeowners to take control of their mortgage payments and explore options to reduce their mortgage term.
“There are ways of reducing a mortgage term. That might be overpaying on your monthly repayments as your income increases, receiving one-off sums of money through inheritance or a bonus, or reducing the term down when you remortgage.” - Danny Belton, head of lending at Mortgage Advice Bureau
The surge in ultra-long mortgages has raised concerns about the potential impact on retirees.
“The average mortgage term for first-time buyers used to be 25 years, so while long-term mortgages aren’t particularly new, the average is now pushing out to 35-40 years.” - Danny Belton, head of lending at Mortgage Advice Bureau
It’s crucial for homeowners to be aware of the risks associated with ultra-long mortgages and take steps to mitigate them.
By understanding the implications of rising mortgage rates and taking proactive steps to manage their mortgage payments, homeowners can avoid falling into the trap of debt and ensure a more secure financial future.
