The city watchdog has said hundreds of thousands of mortgage borrowers are at risk of missing their monthly payments, but which customers are most at risk and why?
Last week (January 11), the Treasury committee released a note from the Financial Conduct Authority suggesting that “close to 200,000” households had fallen behind on payments in June last year, and another 570,000 households are running the risk of falling short of payments throughout the year. the next two years.
FTAdviser asked real estate brokers and experts exactly which borrowers might be most at risk as mortgage terms wind down this year, with 1.4 million people willing to refinance their homes.
The article continues after the announcement.
- One said those who bought new-build flats five years ago with Help To Buy loans “will be the first to get hit.”
- Another said those with second-rate mortgages could be in trouble as lenders stress future rates and reportedly “wreak havoc on affordability.”
- A third said that mortgages, particularly buy-to-let, in areas with high home values like the Southeast are “a ticking time bomb,” with five-year terms that will be renewed starting next year.
- While a quarter said it will all come down to what kind of income debt-burdened households rely on and how secure they are.
This month (January 2023), the average two-year fixed rate was 5.79 percent according to MoneyFacts. A year earlier, it was 2.38 percent.
The FCA figures, which totaled 770,000 borrowers in default or at risk of default, are based on interest rates as of September 23, the day the “mini” Budget that spiked interest rates was announced.
The regulator said its figures were “sensitive to changes in interest rates”, suggesting that the number of borrowers at risk of default could now be much higher.
In September, the average two-year fixed rate was 4.24 percent. In October, this figure rose to 5.43 percent. And in November, it reached a maximum of 6.47 percent.
Inflation-linked HTB Loans
DJF Asset Management founder Dan Fatica, who specializes in short-term property financing, said the outlook is not as bleak as “the doomsayers” say.
“Yes, there will be an affordability crisis, but I think it will be very unique niche markets that will be affected,” Fatica continued.
“Those who bought new build flats five years ago with large Help To Buy loans will be the first to be affected.
“The interest rates on these mortgages are linked to inflation. The scheme was always devised to prop up developers and the building industry first, squatters were an afterthought.”
Those with a Help To Buy government loan must begin paying interest in the sixth year of their loan term until the loan is paid off in full.
The interest rate starts at 1.75 percent, but increases in April of each year based on the inflation rate at that time based on the consumer price index, plus 2 percent.
Over the past year, inflation has peaked at 11 percent, and currently stands at around 9 percent.
This would mean that for someone who starts paying interest this year, they will pay more than double what they budgeted for when they initially got the loan.
“For those who own a home with a mortgage that they bought after 2008 but have not negotiated since then, the outstanding debt will be insignificant compared to the increase they have experienced since then,” Fatica said.