Financially speaking, 2022 was not a kind year for many of us. What with the skyrocketing inflation rates making everything more expensive and then the second blow caused by rising interest rates causing an increase in mortgage payments adding an extra squeeze to already tight finances. All in all, people are struggling financially and struggling to balance mortgage payments with huge gas and electric bills and putting food on the table. There is a glimmer of hope on the horizon though as mortgage lenders have agreed to work with those struggling and take a more flexible approach to provide more support. In this article we will take a look at this support in a little more detail.
What’s going on?
In 2020 inflation (CPI metric) was running at 1.1% on average across the year and in November 2020 it was at 0.6%. This started to change in 2021 and in May 2021 inflation exceeded the Government’s 2% target at 2.1%. By the end of 2021 Inflation was running at 5.1% and simply continued to rise into 2022 with inflation running at 10.7% and it peaked at 11.1%. As part of their effort to slow inflation down, the Bank of England started to raise its base interest rate. In 2021 the Bank of England Base rate was 0.1%, by December 2022 this had sky rocketed to 3.5% which pushed mortgage interest rates up. In September 2021 the average interest rate for a two year fixed mortgage was 1.2%, by the end of 2022 this had risen to 4.17%. Given both the rise in inflation which was pushing up the prices of food, utilities and fuel and the rise in interest rates which was pushing up mortgage re-payments, it is clear that people’s finances were being squeezed significantly causing many to struggle to balance their finances. As such help was needed and mortgage lenders have agreed to adopt a much more tailored and flexible approach to anyone struggling with their mortgage payments.
One of the tactics being adopted is to allow anyone who is up-to-date with their payment to easily switch to a new, more affordable mortgage product without having to go through the full affordability checks. This change in approach deals with the somewhat ironic situation where someone who is paying their mortgage on time every month would, under the bank’s strict affordability criteria would be deemed to not be able to afford a lower mortgage payment and as such would not be accepted for a mortgage move.
Extended Mortgage Terms
Another way lenders are helping homeowners is to offer tailored solutions to their financial struggles. Such solutions include extending mortgage terms to lower monthly payments, switching to interest only mortgages to reduce payments and also to, for the short term, agree a reduced mortgage payment plan. Lenders have trained their staff specially to deal with anyone who is struggling with their mortgage payments.
What to do if you are struggling to pay your mortgage
This more flexible approach by mortgage lenders is a real life-line in the current financial climate and should give anyone who is struggling the confidence to talk openly with their lender. This is also our advice. The moment anyone feels that they are struggling they should reach out to their mortgage lender before it becomes an issue. It is better to communicate openly with the lender rather than default on payments which can make the situation much harder to recover from.