Worried about mortgage rate rises? Talk to your lender
The 0.5 per cent interest rate rise last week has caused serious concerns for homebuyers and worry and fear in the housing market. What was most striking is that many people not only feared being unable to pay their mortgages but worried that their houses would be repossessed, and this view was echoed by some commentators and politicians.
The truth is that repossession is always the action of last resort by lenders. They will always try to do all they can to work with the borrower to prevent a repossession taking place. A sign of this is the tiny number of repossessions which occur compared to the market as a whole.
The latest figures from 2021-22 show that there were just 1,158 repossessions in Scotland out of a total of 1.54 million privately owned homes. It is clear, therefore, that your chances of losing your home in this way are extremely remote and unlikely and the cases that have occurred will be because of serious arrears of months or even years and with a homeowner who does not engage with the lender to resolve the issue.
What has been very concerning in recent coverage is the notion that repossession proceedings will commence even if someone misses just one payment on their mortgage. This ludicrous view led to a curious clause recently negotiated with lenders which states that they will wait a year before taking enforcement action.
The reality is that it takes at least a year following a sustained period of non-payment and non-negotiation to get to court, to raise an action, and to initiate recovery proceedings against a borrower. The courts always place the onus on the lender to do all they can to help the homeowner reach some form of arrangement or settlement.
To allay many of the recent fears the Chancellor Jeremy Hunt met with leading banks and building societies to create a new charter to help those struggling with the recent interest rate rises.
Among the proposals agreed are the option to take a mortgage holiday, temporarily switch to an interest only loan, or extend the length of the mortgage. The clear message is that all homeowners worried about their finances should immediately contact their lender and discuss their options.
These moves are all welcome – and indeed existed without the need for an intervention from the Chancellor – and the major lenders, in my experience, have always been keen to help those in need as much as possible. Lenders have always been flexible in dealing with borrowers and we saw many of these options made available as recently as 2020 in response to the pandemic.
While nobody would deny that the recent substantial increase in monthly mortgage payments is alarming, I think we need to take a step back, examine closely what people can do, and reassure them that there are many options available to them as long as they communicate with their lender as soon as possible.
While there is little doubt that higher mortgage rates are here to stay, I believe that it is questionable whether they will remain at their current level. This is unlikely because the government needs the economy to grow – particularly in the year prior to a general election – and the likelihood is that inflation will start to seriously fall by the end of this year so lower base rates may well reappear.
Therefore, I would urge all homeowners not to panic, not to do anything without appropriate advice, and not to sign up to any long-term mortgage deals while the rates are as high as they are.
There may be reasons to re-examine affordability criteria in the coming months and years if rates remain high, but it is important that we have buyers who can access finance at a reasonable rate and for a period that they find acceptable.
I think we need a period of cool heads and calm words which provide solutions rather than stoke up unnecessary fear to ensure our housing market remains stable and comes through the current situation in a strong position.