We're constantly being told that the UK housing market is recovering after the property market crash a few years ago, and that the economy is strengthening too.
However, if you’re in a position where paying your mortgage has become a monthly struggle, it may not feel like things are getting easier.
New research* carried out for us has revealed that around one in six homeowners have had to alter their mortgage or how they pay it in the last three years because they were struggling to make the repayments.
For most homeowners, their mortgage is probably their biggest monthly outgoing – and also the most important. After all, if they can’t keep up with their repayments not only could their credit score be damaged but their home could also be at risk of repossession.
That means paying this bill is usually a priority for most households – but there are some that have struggled and had to make sacrifices as a result. One in 20 homeowners surveyed admitted they had extended the term of their mortgage in the last three years to help them meet their repayments, while a similar number have switched to an interest-only mortgage.
Extending your mortgage term so you are repaying the loan over a longer period can make your monthly repayments lower and more manageable. However, you must weigh up the cons as well as the pros when you think about doing this. A longer term could mean you pay more interest overall. It could also force you to rethink future plans: for example, you might have to continue working for longer in life rather than retiring so you can guarantee you have an income that will cover your mortgage payments.
Meanwhile, switching to an interest-only mortgage is also likely to mean you pay less each month. However, because you’re only repaying the interest on the loan and none of the capital, when you get to the end of the mortgage term you will not own your home. You will either need to find a lump sum to pay off the remaining mortgage balance, or sell the house and clear the mortgage with the proceeds.
Other steps taken by struggling homeowners over the last three years have included agreeing a new monthly payment with lenders or taking a temporary payment holiday. These could both be possible solutions if you’re struggling.
The main thing is to tell your lender that you have been having difficulties. After all, if they don’t know, they can’t help and may start chasing you for money if you continue to miss payments. By telling them that you’re struggling, you may be able to reach a new agreement and pay a little less. That way, your repayments are more manageable and your lender continues to receive money from you.
Time for a change?
In total, one in six respondents to the survey admitted they had taken one of the above courses of action in the last three years because they were having difficulties keeping on top of their mortgage payments. With the Bank of England recently revealing it plans to start to push up the base rate of interest in 2015, this number might increase.
If you’re on a tracker or standard variable rate (your lender’s rate) mortgage, an increase in the base rate will result in you paying more each month. It may therefore be worth speaking to your lender or a mortgage broker about the possibility of switching to a fixed mortgage before the base rate starts to rise. The benefit of a fixed rate mortgage is that you know exactly how much you need to pay each month, and this is not affected by any rises or falls of the Bank of England rate.
Whatever mortgage you’re on, if a change of circumstances has made you feel you can’t manage your repayments anymore, it’s worth speaking to your lender or a mortgage broker to plan what you do next.
*OnePoll questioned a nationally representative sample of 2,000 adults aged 18 and over between 24th September and 3rd October 2014.
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.