- One in five Brits has already made lifestyle changes to meet mortgage payments
- Over 2 million would consider selling up if more interest rate rises put them in financial difficulty
- An extra £40 per month in mortgage payments would push 4 million homeowners over the edge and into financial hardship
- 1.5 million on SVRs now struggling financially
- Lenders stretch margins between BASE RATE and SVRs to 2%
A staggering 3 million people in the UK have admitted they now struggle financially because of recent rises in their mortgage payments, with just over two million saying they may have to consider selling up if interest rates rise again. Despite interest rates remaining steady this month, the cumulative effect of five rises over the last year has led to millions of Brits facing financial hardship.
Just over half of those people now experiencing financial difficulties (1.5 million) are on a Standard Variable Rate (SVR) leaving them completely exposed to any further rise interest rates and on some of the highest rates in the market.
In addition to those currently struggling to meet their mortgage, another 4 million say that as little as £40 extra per month on top of their monthly mortgage payments would cause them financial difficulty, of these 1.4 million people say as little an extra £20 a month would give them financial problems.
The research also shows that it's older homeowners have been worst hit by a year of interest rate rises. Of the 3 million people currently struggling, around half are actually over 50. Indeed more over 50s are set to struggle in the future if interest rates rise. Just under a million over 50s believe that a mere £20 on top of what they already pay every month for their mortgage would put them into financial hardship.
The impact of just another quarter point interest rate rise on an average 25 year repayment mortgage of £109,000** would be around £210 per year - leaving many homeowners forced to make lifestyle sacrifices to meet their mortgage payments.
Mark Chilton, Chief Executive of Purely Mortgages commented:
"We may yet get another interest rate rise this year, and if this happens figures like these are only set to get worse. Although interest rates are still historically very low it doesn't take much for people to feel the pinch, especially for older people and those on lower incomes.
Mark Chilton suggests that there has probably never been a better time for borrowers on an SVR to fix.
"Many people are languishing on their lender's SVR, wrongly believing that they are on a decent rate. However, interest rates have risen five times since last November and lenders have taken this opportunity to stretch their margins, with the average SVR now typically 2% higher than base rate. The last time interest rates were at 4.75% was back in September 2001 and borrowers would have been charged 6.5% for Halifax's average variable rate mortgage, the same mortgage would now be charged to borrowers at 6.75%."
Mark Chilton added: "Many people worry about fixing their mortgage in case they make the wrong 'bet' on the way interest rates are going to go. However, with some 2 year fixed rates now as low as 4.79%, and with a margin of 2% between base rate and SVRs, interest rates would have to fall to below 3% for the decision to be wrong. The last time the base rate was 3% was in 1954.
"Now really is the time to fix if you're on an SVR and if you have no redemption penalties. In fact, anyone with a £100,000 25 year repayment mortgage at 6.75% SVR is actually throwing away over £163.33 a month*** compared to a 4.79% fixed rate."
Brits take action to afford mortgage payments
In an effort to curb financial hardship and meet mortgage payments, as many as 9.5 million Brits have already made changes to their lifestyle, in some cases the changes are significant:
A worrying 180,000 Brits have already sold their home or another property they own and if interest rates were to rise again and people found themselves struggling financially, this is predicted to go up to around 2.3 million.
Almost 2 million people have cut back on the weekly shop to meet mortgage payments. Again, this figure would rise to 5 million if rates rose again and caused financial problems.
One million people have forfeited private health cover or school fees which could rise to a staggering 1.6 million in the face of another interest rate rise.
A surprising 2.5 million people have cancelled holidays as a way of keeping up with mortgage payments. This is set to rise to a third of all mortgage holders if rates rose and people found they were struggling.
A third of all homeowners (5.4m) have cut back on luxuries like clothes and gadgets, again this rises to over 50% (9.1 million) should rates rise causing issues financially.
Yet surprisingly, well over half of all those who are currently struggling due to higher mortgage repayments said they were unlikely to consider remortgaging at any point in the future. Of these nearly a quarter (22%) said they were happy with their current mortgage provider, one in 10 believe they are tied to their current mortgage and 17% think it will cost them too much money to switch.
Mark Chilton added: "In a way it's good that people are seeing the importance of making lifestyle changes to find the money to meet the mortgage, but you don't have to cut back on all of the good things in life. By simply remortgaging to a better rate you could save just as much money as you would have to sacrifice, if not more - and it doesn't have to cost anything as long as you don't have any current redemption penalties on your existing mortgage."
In order to encourage borrowers, particularly those who may not have remortgaged for a number of years to switch away from their lender's SVR, Purely Mortgages has secured a market leading fixed rate mortgage, fixed at 4.79% (6.7% APR) until 1/1/07, which has a maximum loan to value of 60%.
