In recent months, we have seen a steep increase in mortgage rates with lenders across the board. Although it seems that the dust has now settled and many banks and building societies are now bringing their rates back down slowly, the impact of the rate rises is already being felt by borrowers. Thousands of mortgage owners are reporting being hundreds of pounds a month worse off and many are struggling to keep up with the higher payments. However, could the government announce a lifeline? Liberal Democrat leader Ed Davey has started the call for a £300 per month mortgage grant to help struggling Britons.
Mortgage Interest Rates
As we all know, in September 2022 the former Chancellor Kwasi Kwarteng announced an ill-though out ‘mini-budget’ as a precursor to a planned full budget later in the year. Unwise tax cuts announced in the mini budget sent the Bank of England’s base rate soaring to keep inflation down. Terrified banks and building societies started to increase their own rates to levels way above what was needed. Soon mortgage products that were previously 2% had increased to over 6% and as a result, people on tracker rates and people coming to the end of their fixed rate period were forced on to rates 3X higher than they were used to.
Let’s look at a real-life example to illustrate how much worse off some borrowers were. A homeowner had a mortgage balance of £412,000. Their full mortgage term was 24 years at a fixed rate of 2.09% for two years. That meant that their monthly mortgage payment for two years did not get any higher than £1,820. This year their mortgage product came to an end and their deal was up for renewal. The cheapest product available for their deal is now 5.5% meaning that their monthly mortgage payment would rise to £2,579! An extra £759 a month. There are various ways that a mortgage advisor will be able to help bring this monthly payment down, but the harsh reality is that mortgage payments will go up for everyone.
Potential Monthly Mortgage Grant
Speaking to various news outlets over the last couple of days, the leader of the Liberal Democrat party Ed Davey has directly addressed the mortgage payment crisis. He has called for the government to provide a £300 per month mortgage relief grant to help out these people and families struggling the most. Although in many cases such as the borrowers mentioned above, mortgage payments will still be much higher than they were originally paying, but £300 a month would be a huge relief for those struggling to keep up with their loans.
Commenting on the increase in mortgage payments, Davey has said:
“People are worried sick about how they will get by or even afford to stay in their homes. The Conservatives have crashed the economy and that’s added hundreds of pounds to millions of people’s monthly mortgage payments. Something has to be done, particularly for those who are really struggling or in danger of falling into arrears or even facing repossession.”
With that he has suggested that the government roll out a temporary £3 billion mortgage protection fund to help homeowners who have seen a 10% increase in their mortgage repayments. In the case of the mortgage borrowers mentioned earlier, they have seen an over 41% increase to their mortgage, so they would be eligible for the new proposed scheme. As always, the question of how the £3 billion would be funded has been raised. Davey suggests that it could be funded by reversing cuts to the bank levy and bank surcharge that have been in effect since 2016.
What Can I Do Now To Cut Mortgage Costs
Right now, the proposed £300 mortgage grant is literally just a suggestion by the Liberal Democrats and unfortunately has no firm plans of being considered by the ruling Conservative government, but that doesn’t mean that something similar won’t be considered in the future. In the meantime, the best thing to do as a mortgage borrower is to speak with a qualified mortgage advisor. Now is a more crucial time than ever to speak to an advisor, to make sure that you are keeping your costs as low as possible and keeping financially comfortable for longer.
There are many things that an advisor can do to help you get the best deal possible. For example, an advisor like us at Oportfolio will have access to over 90 different mortgage lenders and thousands of mortgage products. Our job would be to find you the most competitive deal with the best rates for you. 98% of the time, going direct to your own bank for a mortgage is not the best route forward as you are only limited to the products that they offer, rather than the other 98 lenders. A mortgage advisor could also look at re-structuring your current mortgage so that it brings your payments down doing things like changing your loan to part interest only and part capital repayment.
All of these different options are available to clients of Oportfolio and we are more than happy to talk through any mortgage related issues or queries that anyone has. Please feel free to give our team a call today to see how we can help.