‘My mortgage has gone up £800 to £1,900 a month and I may have to move back in with my parents’
Heena Patel and her partner Demi D’Cunha were so excited to buy their first house together in November 2021.
But fast-forward almost two years and it’s a bleak picture financially – a steep increase in their mortgage interest rate could mean they may have to sell their beloved home when their two-year fixed rate ends.
The couple were paying £1,100 a month and are now facing finding an extra £800 when their payments shoot up to £1,900.
One of the options the couple are considering is selling their house – which they bought for £398,000 – and moving back in with their parents – which Ms Patel says feels like a “huge backward step” at age 29.
“Over the next two-year period, our home would cost us an extra £20,000,” said the fashion buyer, from Lewisham, southeast London. “That’s a hell of a lot of money. It’s devastating, we never expected this would happen with our very first home.
“It’s very hard when everything else is going up so much too. Since Covid, we are both being asked to go into work a little bit more so we have increased commuting costs too.”
They are in a similar predicament to millions of householders feeling their budgets squeezed by increases on top of increased prices for food and utilities. The average 25-year, five-year fixed rate mortgage currently standing at around 6 per cent.
Around 4.5million households have already seen rises in mortgage payments since the Bank of England started raising interest rates in December 2021 and another 4million will be affected by higher rates by the end of 2026.
Some of Britain’s biggest lenders have made mortgage rate cuts, offering some relief to struggling homeowners. However, some experts warned that the price war may be coming to an end.
Their raised outgoings means Ms Patel and her partner Demi D’Cunha, a social media editor, are having to cut costs elsewhere, such as on holidays. They had also hoped to celebrate their wedding soon.
“That £20,000 is money we would have used to get married but those plans are having to go out the window now.
“We’re considering extending our mortgage terms but our mortgage adviser was against that. We’re also thinking about switching to interest only, but it feels like you’re paying into nothing.”
Sellers get realistic
Mortgage rises appear to be impacting house prices, with asking prices on Rightmove now falling at the fastest rate since the summer of 2018.
There’s been a fall of 1.9 per cent this month – the biggest monthly fall since August 2018. On average, asking prices on the online property portal are 0.1 per cent lower than they were at this time a year ago, the first annual dip since 2019.
Experts say the steep drop is partly seasonal as the housing market quietens over the summer months. However, Tim Bannister, Rightmove’s head of property data, said there was evidence of sellers trying to price more competitively in the face of high mortgage rates and a cost of living crisis, reports The Times.
Options for struggling homeowners
Writing for i, investment fund manager Nicola Horlick warns that recent falls in inflation will not stop the interest rate rising and that “more mortgage pain is coming”. She predicts there may be two further increases before Christmas.
Options to struggling homeowners include extending the terms of their mortgage and switching to an interest-only mortgage.
Greg Marsh, chief executive and founder of household money-saving tool Nous.co, said: “Anyone who is at risk of falling behind on their payments should get in touch with their provider as soon as they can. Going into arrears can damage your credit rating and affect your ability to borrow again in the future, but finding out the options available to you won’t.
“The Government and the Financial Conduct Authority have introduced a new ‘mortgage charter’ which could help those who are worried about meeting their payment obligations. It gives the option to temporarily extend the term of your mortgage or to switch to interest-only payments without harming your credit file. Homeowners can switch back to their normal repayments within six months.
“Extending the terms of your mortgage and switching to an interest-only mortgage can bring down monthly outgoings temporarily but will increase the amount you pay in total over the full term of your mortgage.
“It also really helps to get a handle on your outgoings to find any savings. At Nous.co we offer a range of free tools to help people manage their finances, and can save a typical household hundreds of pounds a year on their bills.”
Do you have a real life story? Email [email protected].
