Refinancing, consolidating debts, or extending mortgage are among the considerations
In real-world terms, interest rates going up makes borrowing more expensive, so there can be a knock-on effect depending on your situation.
First-time buyers might find it harder to get that first foot on the property ladder, for example, as the economic impact affects people’s finances. If they are paying interest on any credit card debts, personal loans or store cards then this will see payments go up and less wiggle room each month, which could affect how much they can borrow.
“It could be a good time to prepare and get mortgage-ready, or if they need a mortgage soon, certain lenders offer free valuations and no arrangement fees which can cut down on upfront costs,” said Paul Coss, co-founder and chief customer officer of Haysto.
Coss explained that Haysto is seeing a lot of people on variable and tracker mortgages looking to switch to a fixed deal, which he believes could be a good idea as it will avoid further increases impacting homeowners’ mortgage payments.
“With energy prices on the rise, bringing down the monthly mortgage payment is a good way to free up some cash, as it is usually the biggest outgoing,” Coss added.
He also believes it is an opportunity for homeowners to assess their financial situation and weigh up options, such as refinancing, consolidating debts, or extending mortgage terms. Some lenders, he noted, are offering free legal services and cashback incentives for remortgage customers.
What’s happening in the market?
On the flip side, he said that this increase in demand for remortgages, coupled with an incredibly buoyant housing market at present, has already led to a massive surge in applications with lenders taking longer to turn them around because of the sheer volume of applicants.
Read more: Cost of living inflation and mortgages – what is the impact?
To try and tackle this, he explained that high street lenders like Santander have issued amendments in their policies to try and cater for these delays by offering automatic mortgage offer extensions for one month beyond the deadline without any proofs or requirements.
“With the Bank of England base rate rising to fight inflation and ultimately the growing cost-of-living crisis, it is actually having a knock-on effect on the cost of people’s largest outgoing, their mortgage,” Coss said.
This will and has, he explained, put many clients off purchasing a property as they are worried about how high rates will go. He believes those pressing ahead will probably see an increase in mortgage costs in the short term, while suffering from the increase in cost-of-living still in play until inflation gets under control.
Red flag to lenders
Sara Palmer (pictured), head of distribution at The Mortgage Lender, noted that it has already been well reported that the cost-of-living crisis is putting a significant strain on people’s finances, and where there is financial strain, there are usually missed or late payments.
“With energy bills a particular problem and expected to increase even further in the autumn, there is a real concern that people will be making some difficult choices,” she said. She has already seen increasing numbers turn to ‘buy now pay later’ schemes.
However, she said that people often do not realise that this can be a red flag to lenders, with a reliance on short term finance evidence of financial stress.
In these circumstances, Palmer explained that it is important people reach out to their lenders to discuss their options.
Read more: Lenders must have adequate support in place as cost of living rises
“We know that life does not always work out the way you expect, and there are lenders out there to support in a responsible way,” she said.
In addition, Palmer believes there needs to be more education available for both brokers and customers on adverse credit and where to find support. She explained that brokers should ensure they are aware of the lenders that do offer products for those classed as ‘adverse’ and what their criteria is, to ensure they can guide their clients.
“If the client is not in a position to access a mortgage at the moment, guidance on how to rebuild their credit score and become ‘mortgage-ready’ is also vital,” she concluded.
