- by Kevin Peachey
- cost of living reporter
The Financial Conduct Authority (FCA) has said that young homeowners are likely to be financially stretched as a result of higher mortgage rates.
The regulator said an estimated 356,000 mortgage borrowers could face difficulties with repayments by July next year, with those aged 18 to 34 most affected.
This is down from its previous estimate in September which suggested 570,000 people could have the problem.
Competition is back in the home loan market, with fixed rates coming down.
worry about repayment
The FCA defined mortgage borrowers as being financially stretched if more than 30% of their gross household income was going towards mortgage payments and they were not already behind in payments.
It said smaller homeowners, and those living in London and the South East of England, were the most likely to find themselves in this situation.
Within this group, those starting a fixed rate deal could pay an extra £340 a month on average under a new mortgage deal.
But the overall picture was less stark than previously estimated due to changes in market expectations of the Bank of England’s base rate – which affects lenders’ fees.
The previous analysis was based on market expectations in September last year that the bank rate would have peaked at around 5.5%, in contrast to the peak of around 4.5% in February expectations that were used to calculate the most recent estimate.
The FCA said that by June last year 200,000 landlords had already defaulted on payments.
“Our research shows that most people are making mortgage repayments, but some may be facing difficulties,” said Sheldon Mills, executive director of consumers and competition at the FCA.
“If you are struggling to pay your mortgage, or you are worried, you don’t have to manage alone. Your lender has a range of tools available to help.
“Contact as soon as you have concerns, don’t wait until you’ve missed a payment before doing so. Simply talking to them about your options will not affect your credit rating.”
Mortgage rates rose throughout the past year, making a new fixed-rate deal more expensive than many homeowners have seen for at least a decade. Rates rose after the mini-budget but have stabilized since lenders started competing again for borrowers.
Borrowers have also faced financial stress from rising cost of living, particularly food and energy bills.
Settling it all together: what happens if I miss a payment
Within 15 working days of the default equivalent to two or more months of repayment, your lender must:
- tell you how much you owe
- List missed payments
- State how much is owed on the mortgage
- Outline any fees
Your lender must treat you fairly by considering any request to change your payment pattern, perhaps with a lower payment for a shorter period.
The FCA indicates that any arrangement you get into will show up on your credit file – affecting your ability to borrow money in the future – as will any missed payments.
Your lender may also suggest or allow you to extend the term of the mortgage or let you pay only interest for a certain period.
Lenders can offer mortgage holidays which enable you to delay payments based on individual circumstances – and not for those who are already in arrears – but not indefinitely. Again, this will appear on your credit file.