Is Your Mortgage Dragging You Down? Discover the Top 5 Shocking Reasons Why!

Conversations about mortgage rates are no longer limited to the dinner circuit or the golf course.

People are talking about their mortgage shock with friends at the school gates or in the supermarket. It’s not just anxious homeowners: Renters are worried that their landlords, facing higher rates of their own, will raise their rent.

Here are five reasons for the current commotion.

If we are to believe the forecasts, we should be seeing a significant slowdown in price increases. The inflation rate shows the rate at which prices rise and thus charts the increase in the cost of living.

However, the latest official data spooked markets and lenders, as it suggested that inflation would stay higher for longer than expected. He also pointed to a theory that higher prices were becoming more integrated into the UK economy.

The main tool, although quite blunt, to deal with high inflation is to the Bank of England to raise interest rates. Since the benchmark rate is now expected to peak at 5.5%, instead of the current 4.5%, the cost to lenders would be higher and they have, in turn, increased the interest rate they charge for the mortgages.

Mohamed El-Erian, a former deputy head of the International Monetary Fund (IMF) and president of Queens’ College, Cambridge University, says the blame lies with central banks who suggested high inflation would only be temporary.

“It turned out that inflation was persistent and therefore central banks were late and society as a whole was slow to adjust to higher inflation,” he told the BBC.

Two years ago, there was a rush of property buyers when tax concessions from ministers to keep the housing market moving during Covid were cancelled.

Lower or zero rates on stamp duty and the equivalent tax in Scotland and Wales, made “an even hotter hot market”, according to analysts. The pandemic led many people to rethink where they lived, and stamp duty cuts made them move faster.

Many of those buyers obtained two-year fixed mortgages, which are now due.

The peak for homeowners doing fixed mortgage transactions is from July to October of this year, with more than 400,000 expected to do so, according to figures from the city’s watchdog, the Financial Conduct Authority.

The timing is not great. The rates being offered for a new deal now are considerably higher than they were then. That could add hundreds of pounds to your monthly mortgage payment.

Anil and Jessica Jhamat, from Solihull, have to find an extra £550 a month. They bought their house over the stamp duty holiday, enabling them to buy “a house we otherwise couldn’t have afforded.”

“We assumed that interest rates would stay low, otherwise we would have taken a five-year fix,” Jhamat said. “Hindsight is a wonderful thing.”

The pharmacist and his wife, a digital manager, also have to find £1,000 a month in childcare fees for their one-year-old son. “Where we are now, we have lost what we saved [in stamp duty]. We’re essentially back to square one,” he said.

A mortgage payment is the largest monthly expense for many people, so decisions about which product to choose are made with much thought and advice.

The problem is that lenders are currently pulling their mortgage products with little notice. That creates a frantic situation.

Thursday, HSBC gave notice to brokers that he was going to get his deals out four hours later. After being inundated with requests, he withdrew them within three hours, only to then temporarily reopen the channel for requests on Friday.

In times like this, the big lenders don’t want their offers to be significantly cheaper than their rivals, and they just want as many apps as they can get.

Justin Moy, founder of Chelmsford-based mortgage broker EHF Mortgages, said: “These last-minute communications only add to the stress of the situation. Decisions on rate changes and price revisions should give everyone the opportunity to react in a controlled manner, especially when the increases are substantial and make a real difference to a borrower.”

Homeowners who decide the best thing to do is sit idly by and wait for things to settle down could be in for a nasty surprise.

When a fixed term comes to an end, usually after two to five years, the borrower automatically reverts to their lender’s Standard Variable Rate (SVR). That rate is higher, so most people opt for another fixed offer, although not everyone has that option, since, for example, they may not have made payments in the past.

Brokers say these SVRs have skyrocketed, meaning anyone who takes a wait-and-see approach will see a massive increase in the rate they pay, and therefore a much higher monthly mortgage bill.

“Some lenders have a much higher SVR than others. We tell our clients how important it is to choose a lender that treats their clients fairly when their rates come to an end,” says Aaron Strutt of broker Trinity Financial.

Many people were surprised by the increase in mortgage rates since December 2021, because they had become so used to ultra-low interest rates over the previous decade or more.

A variety of economic and pandemic reasons kept interest rates low, sometimes at record lows.

Anyone who has bought a first home during that time would never have faced a situation like the current one. Rates have been much higher in previous decades, but now people are borrowing more as house prices have skyrocketed.

Lenders tested applicants’ finances to determine their ability to cope with higher rates. That’s now more fact than theory, and it will lead some people to wonder if they pushed themselves too hard. Analysts say the availability of jobs and the relative lack of unemployment have kept many from having to sell.

He tenants feel the impact too. Higher costs for owners will increase rental prices and lead to fewer homes being available for rent if they decide to leave the sector.

Additional reporting by Jemma Dempsey