Mortgage crisis: How to negotiate the housing minefield

You won’t be alone in having concerns.

The average five-year fixed-rate homeowner mortgage has jumped above six per cent, new data from website Moneyfacts has shown.

The last time the typical five-year fixed-rate residential mortgage topped that figure was in November last year, when rates rose sharply following former chancellor Kwasi Kwarteng’s mini-budget.

It comes as the Bank of England pushed the UK base interest rate to five per cent last month, opting for a bigger hike than most economists were expecting. It marked the 13th time in a row that the central bank had pushed up rates, in efforts to quell rampant inflation across the UK.

Britain’s homeowners are now spending more income on their mortgage than at any time since the financial crisis of 2008. Repayments on new loans accounted for an average of 20 per cent of borrowers’ gross incomes between January and April, according to trade body UK Finance.

What do mortgage advisors say

Homeowners are naturally concerned about how much their monthly repayments will increase but mortgage advisors insist it’s important not to panic. Adrian Newling-Goode, Hilltop Mortgage Solutions co-director, said: “We have seen the 13th consecutive Bank of England rate rise since they started their upward trend around December 2021.

“This will of course be a concern for those looking to buy a new property or refinance their existing mortgage, but my first piece of advice is not to panic.

“We saw a similar pattern with mortgage rates last September following the mini-budget before we entered a period of calm.

“There are still plenty of mortgage products available and we would recommend that you speak to a broker who can review your individual financial circumstances and budget, and ensure that you are on the best rate/deal available.

“For any clients whose existing deal is coming to an end, speak to a broker about your mortgage as early as six months before its expiry date, so that you can review your options in plenty of time with the potential of securing a rate in advance.”

Pattingham-based Simon Snape, of Newgate Financial, added: “Anyone who has come into the property market over the last 15 years won’t have experienced anything like this. Things have changed but I think the main advice is to take advantage of the time you have to review your situation and monitor the market and make sure you have the best option.

“A lot of lenders offer six-month mortgage offers now on remortgages, when it it used to be traditionally three months. We are saying to clients, act now, rather than later and use that six months to secure something today.”

The estate agent view

Estate agent Russell Griffin, director of Samuel Wood Estate Agents in Shropshire, said there is no such thing as waiting for the ‘right time’ when it comes to property.

“On a county level, we are in a period of re-alignment following the heightened market conditions created by the Covid demand,” he said.

“Now is the time to speak with a skilled mortgage advisor and become informed. I always refer to the phrase that any property purchase is about “time-in, not timing” - in other words, seek advice and buy that next property, one suitable for your future, however that looks.

“I have seen many markets in my 35-year career. One thing is for sure – people will always buy and sell and there is really no such thing as waiting for the ‘right time.’”

And Aaron Manley, director of Mannleys Estate Agent in Wellington, said: “I would urge potential sellers to seek proper financial advice prior to selling if they are also buying. We have seen some vendors put their house on the market to then withdraw later after finding out it’s going to cost too much to move if the penalties are far too high.

“This obviously has some repercussions regarding chains and if you’ve ever experienced a house sale fall through, you know how devastating that could be. Shropshire and Telford & Wrekin are very desirable areas in which to live or move to, and we are seeing a steady flow of out-of-areas still coming through.

“Keeping chains moving is one of the best ways to keep the property market buoyant and the property market is one of the cornerstones of our economy. Panic comes when we aren’t well informed, so do your homework and get advice before deciding to sell or move.”

Despite mortgage concerns, Caroline Eaton, director at Berriman Eaton, said that the number of viewings and applicants registering on her company’s mailing list has not really altered.

“By last week our offices had registered around 4,500 new applicants since January 1, which shows a healthy demand remains for the West Midlands,” she said. “We are seeing less enquiries from the south, our market is more fuelled from the West Midlands moving west and down-sizers releasing equity to help children buy first homes.”

Could overpaying on mortgage help?

Although there isn’t much that can be done about the rising interest rates, Adam French, personal finance expert at NerdWallet UK, said overpaying on your mortgage while your rate is low could be a great way to reduce the impact that moving from a potentially sub two per cent interest rate, to almost six per cent will have on your repayments, if your finances allow you do so.

“Many people think that you need to overpay on your mortgage by hundreds or thousands every year, but that’s simply not the case,” he said. “Even a fairly modest amount of money can have a big impact on overall debt. And overpaying when your mortgage rate is low means more of it will be paying off the capital as opposed to the interest.

“Overpaying while your rate is low could also mean you can reduce your loan to value (LTV), which may help you unlock lower interest rates when you remortgage.

“The lower your LTV, the more likely you are to be offered the lowest rates when you remortgage.

“At the very least by paying a little extra off on your mortgage while you can afford it could help you budget now for higher rates in the future and chip away at some of what you owe.

“For example, if you have a mortgage debt of £200,000 over 25 years, assuming this remained on a 2 per cent interest rate, overpaying by £50 per month you will save £4,114 in interest over the lifetime of your mortgage, and reduce your mortgage term by one year and nine months.

“Overpay an extra £50 per month off the same mortgage with an interest rate of six per cent and you will save £17,664 over the lifetime of your mortgage, and reduce your term by two years.”

“It’s worth using a mortgage calculator so you can see exactly what difference overpaying on your mortgage will do for you.

“It’s also worth bearing in mind that overpaying on your mortgage probably won’t reduce the amount you pay right now. Speak to your lender to see what is available and what suits you best.

“The first is that overpaying will reduce the overall term of the mortgage, meaning your monthly payments will stay the same and you’ll just pay your mortgage off over a shorter period. This will save you money in the long run.”

What about renting?

Tenants in properties owned by private landlords have also been facing rising rents over the past 12 months.

According to Zoopla, latest figures show that the average UK rent in April this year had increased by £110 per month – or 10.4 per cent – since April 2022. This took the average UK rent to £1,126.

In many cases, this is because landlords, who have faced their own higher mortgage rates, have been forced to pass on those costs.

Following the Bank of England’s recent decision to raise interest rates, Ben Beadle, chief executive of the National Residential Landlords Association, explained that 85 per cent of buy-to-let mortgages are interest only, making them especially hard hit by rising mortgage costs. He said some landlords had seen mortgage payments rise by almost 240 per cent since December 2021.

Caroline Eaton, of Berriman Eaton, said that the region had a high number of people who may have inherited property or saw it as a good income stream. But she said: “With a lot of negativity surround the Reform Bill in the rental field and red tape, landlords are selling investment properties.”

This year has also seen an increased demand for flats and houses, which experts say has partly been driven by some would-be buyers putting their plans on hold amid rising mortgage rates.

Olly Roberts, a graduate surveyor at property management firm AddLiving, has also provided advice on how to get the best deals when looking for a rental property. He said: “It is an exceptionally hard time for renters across the UK – so anyone struggling to afford a relocation should be kind to themselves. The number of people privately renting has doubled in the past two decades due to similarly high house prices.

“There are a few ways you can save or achieve cheaper rent. With the market stretched to breaking point, prices will eventually lower – but it is not very likely we will witness this in 2023.”

His first tip is to try to negotiate. “Negotiating is not as easy as it used to be as rental demand has increased. This means that if you want to make an offer on a flat, you’ll have to be smart about it. Think about what could make you stand out compared to other tenants,” explains Olly.

Rental demand increasing isn’t only beneficial for landlords, Olly points out. “Instead, you might notice flats on platforms like Rightmove that have been reduced several times.

“If you see this happening, consider what the flat has, or lacks, that is putting prospective tenants off – and if it’s something you can live without. This can save you a substantial figure on rental costs.”

Living alone is no longer a viable option for many people due to spiralling costs.

“Luckily, platforms like SpareRoom make it easy to find a flatmate – and you can always set a maximum, agreed ‘rental period’ when signing on, meaning if you aren’t compatible, you can easily find someone else,” explains Olly.

Where to go for help

If you are struggling to afford your mortgage payments or rent, it’s important to seek advice.

You will likely see an increase in your monthly mortgage payments if you don’t have a fixed-rate or you are coming to the end of one.

If they have become unaffordable, MoneyHelper, the government’s advice service, says the first step should be to contact your lender to talk through your options. The lender must make reasonable attempts to reach an agreement with you, including considering whether to change the way you make payments and when you make them.

Lenders have to treat you fairly and consider any request you make to change the way you pay.

Offer to pay back what you can afford when you discuss your options with your lender – continuing to pay back some money is better than paying nothing and will help reduce your arrears.

Consider how and when you can return to making your full monthly payments.

Think about when you can afford to pay more to make payments in excess of your normal monthly payment to pay down any arrears.

Depending on your circumstances, your lender might also make suggestions for you, for example extending your mortgage term.

Mortgage payment protection insurance, also called accident, sickness and unemployment insurance, can help with your mortgage repayments if your income has fallen because of redundancy, accident or sickness. You might have taken it out when you got your mortgage – look through your mortgage paperwork and double check with the lender or the broker you used when you took out the mortgage.

You can get also advice from one of the many free debt advice charities and organisations.

A trained money adviser from an independent agency, like Citizens Advice or Shelter, can give you free and impartial advice.

Landlords have to follow certain rules to increase your rent and these will depend on what type of tenancy you have. Citizens Advice says if you disagree with your rent increase the best thing you can do is talk to your landlord and try to reach an agreement to pay a lower rent.

It suggests asking your landlord if you can pay slightly less than they’re suggesting. For example, if your landlord wants to increase the rent from £750 per month to £800 per month, suggest meeting in the middle and paying £775. Your landlord might negotiate on price rather than risk losing you as a tenant.

Do some research into how much similar properties cost to rent in your area before trying to reach an agreement, and use this as evidence.

If you decide the rent increase is fair but is just too high for you, then Citizens Advice says you should always think carefully about your options before deciding to leave.

Check if you can get help to pay your rent. If you’re on a low income or get benefits you might be able to get Housing Benefit (or housing costs payments through Universal Credit) for example.

If you decide to move out, make sure you’ve found a new place to live before you leave. If you need guidance, the Citizens Advice helpline can be contacted on 0800 144 8848 or you can contact your nearest branch.

If you are a landlord

Propertymark, a membership organisation for property agents, says landlords should first get in touch with their tenant, if they notice that the rent has not been paid.

You should keep a record of written correspondence in case things escalate and remember to be polite and courteous, as issues such as this can be sensitive and any unreasonable behaviour could affect your position if you eventually go to court.

If the tenant is having money troubles, you may want to arrange a payment plan to ensure they can pay back what they can afford for the short term. Long-term, you may want to guide them towards applying for the housing element of Universal Credit to help them make up for the shortfall.

If the tenant has a guarantor listed who has signed the tenancy agreement or a Deed of Guarantee then you can request that they pay the rent arrears. If the rent still has not been paid after 14 days, contact the tenant and guarantor again requesting rent payment. A letter or email is best in this instance so that you can record your correspondence.

Most landlord insurance will cover unpaid rent so your income is covered if your tenant falls into arrears. Get in touch with your insurance provider to see how to claim back the money you’re owed.

If the tenancy ends with rent payments outstanding, you can request to deduct any unpaid rent from the tenant’s deposit. Contact the tenancy deposit scheme to find out more.

If the tenant falls into two months of rent arrears and has made no effort to communicate or remedy the situation, then you can begin the eviction process by serving a Section 8 Notice on the ground of rent arrears. At this point, the tenant may pay back their arrears.

Advice is also available from the National Residential Landlords Association (NRLA), which is the UK’s largest membership organisation for private residential landlords, supporting and representing over 100,000 members. They range from full-time landlords running property portfolios to those letting single bedroom flats.

The NRLA helps members to navigate challenges and seeks a fair legal and regulatory environment for both landlord and tenant. See www.nrla.org.uk or call 0300 131 6400.

Most councils are able to offer advice on tenancy agreements, ending a tenancy and other issues.