Martin Lewis warns of mortgage “ticking timebomb” for millions of homeowners
MARTIN Lewis has warned of a mortgage “ticking timebomb” if interest rates reach 6% next year.
The MoneySavingExpert said that expected future rate hikes could be “catastrophic for mortgage holders.”
The Bank of England has said that it may need to raise interest rates to as high as 6%.
Speaking on ITV’s Good Morning Britain, Martin Lewis said that those on variable rate mortgages or fixed deals coming to an end in the next three to five months should take action now.
He suggested that they should go on a comparison website to see what mortgage rates are currently available.
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The MoneySavingExpert.com founder said: “Then check your existing company to see what it will give you and then mortgage brokers are worth their weight in gold right now.”
Anyone on a standard variable rate is likely to paying more than they need to as fixed deals are usually cheaper.
Those with a fixed deal can lock in rates up to six months before their current deal ends, depending on their lender.
Around 2million homeowners are coming to the end of two year fixes soon, after getting a deal when rates were at historic lows.
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Mr Lewis said that, for some, there may be a logic to breaking their fixed deal: “It is not right for everyone – you want the mortgage broker to do those numbers.”
You’ll usually pay a fee for leaving a deal early. How much that is will depend on the terms with your lender.
For some it could be worth paying it to get lock in a low rate before they rise again.
Currently the Bank of England base rate is at 2.25% and is expected to rise again when it meets again on November 3.
It’s been dubbed a ticking timebomb as they face a sharp rise in borrowing costs.
Martin said: “Once you start applying (for a mortgage) you have to pass an affordability check.
“Clearly, many people will start failing affordability checks at that rate. So they’ll either be stuck on only their own company’s deals or going to a standard variable rate.
“And worse, because we now have a risk to house prices, that’s not a prediction, I’m saying there is a risk that house prices may drop, they may not, they may continue to go up.
“And if house prices drop, that will hurt people’s loan-to-value ratios, which will make it even more difficult to get a cheap mortgage.”
Mortgage pain
He said that the vast swathe of tax cuts have spooked the markets which has lead to lenders withdrawing mortgage products from sale and pricing deals upwards in response.
The choice of mortgage products is continuing to shrink, according to MoneyFacts.co.uk.
Between Friday September 23 and today a total of 1,621 residential mortgage products have been withdrawn leaving 2,340 on sale.
Brokers have said they expect lenders to return with new deals in the coming days.
David Hollingworth of mortgage broker L&C Mortgages said: “There are still plenty of changes occurring and still plenty of lenders biding their time before they relaunch rates into the market.
“Some of the major players are adjusting their rates by either pushing them up as Nationwide did yesterday and HSBC did today and or slimming down their range, as Halifax and Barclays have done.”
Rightmove’s housing expert Tim Bannister said: “Over the past month, activity has shown that the housing market has been surprisingly resilient against headwinds of rising rates and so it looks like for those who can move, they’re going ahead for now.
“We’ve seen demand softening in the past few months, but buyer demand is still 20% higher than the pre-pandemic five-year average, house prices are 15% higher than they were two years ago, and the overall number of homes going through conveyancing is 40% higher than in 2019.”
How to get the best deal on your mortgage
Getting the best rate on your mortgage can depend on the rates available at the time, but there are several ways to land the best deal.
Usually the larger the deposit you have the lower the rate you can get.
If you’re remortgaging and your loan to value ratio has changed this could also give you access to better rates than before.
A change to your credit score or a better salary could also help you access better rates.
To find the best deal use a mortgage comparison tool to see what’s available.
You can also got to a mortgage broker who can compare for you, but you may have to pay for this service.
It could cost a couple of hundred pounds but it might save you thousands on you mortgage overall.
You’ll also need to factor in fees for the mortgage, though some have no fees at all, or you can add it on to the cost of the mortgage, but beware that means you’ll pay interest on it and so will cost more in the long term.
You can use a mortgage calculator to see how much you could borrow.
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Remember, that you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks, and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statement.