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Your mortgage could have a negative effect on your mental health. Here’s why, and what you could do about it

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In recent months, the cost of living crisis has never been far from the headlines. Rising costs of fuel, energy, and mortgages have affected millions across the UK, with a new report finding that the crisis is causing undue stress for many people.

MoneyAge reports that 56% of UK mortgage borrowers say the ongoing cost of living crisis has affected their mental health, and 3 in 10 people are concerned they won’t be able to make their mortgage payments within the next year.

If you are concerned about meeting your financial obligations, it is important to remember that you have options. With the right advice, you may be able to make changes to your mortgage that could make your repayments easier to manage.

3 million households face a £3,000 a year increase in mortgage costs

Since the end of 2021, the Bank of England (BoE) has raised the base interest rate 12 times. As of May 2023, it stands at 4.5%, up from just 0.1% in the autumn of 2021.

These interest rate rises mean that many mortgage borrowers are seeing an increase in their monthly payments. According to the Guardian, an estimated 3 million households face a £3,000 a year increase in their mortgage costs by the end of 2023/24.

Additionally, you may have increased outgoings due to inflation pushing up the costs of things like food and fuel, and the spike in energy prices. This may put pressure on your finances and make it harder to meet your mortgage payments.

MoneyAge reports that the threat of rising mortgage costs has prompted serious concerns about the future for many people, with 19% expecting to delay their retirement. This level of uncertainty about the future can lead to further stress and anxiety.

It’s worth remembering that you may be able to use the current situation as an opportunity to reassess your existing mortgage deal and make changes to bring the payments down.

There are several potential ways that you can make your repayments more manageable, and an experienced mortgage broker will be able to give you the guidance you need.

Remortgage to a more suitable product

When you take out a new mortgage, you may benefit from a fixed- or tracker-rate for the initial period ­– usually two to five years. However, once that period ends, you will likely be switched to your lender’s standard variable rate (SVR), which may be higher than your initial rate and other deals available on the market.

If you remortgage, you may be able to find a lower interest rate, reducing your monthly payments. Additionally, if you choose a fixed rate, you could benefit from protection from rising rates. However, keep in mind that you wouldn’t benefit if interest rates fall.

If the value of your home has increased since you took out your mortgage, it’s likely you will have a lower loan-to-value (LTV) ratio, which could give you access to more favourable interest rates.

However, before you remortgage, check whether you are tied into an existing deal with your current lender. If you are, you may have to pay an early repayment charge (ERC). This could outweigh any savings you make by switching your mortgage elsewhere.

Ask your lender for a repayment holiday

Remortgaging is not always an option if you are locked into an existing deal, or you are not able to find a lower interest rate. In this case, if you are struggling to keep up your repayments, you may want to consider asking your lender for a repayment holiday.

A repayment holiday is an agreement between you and your lender, which may allow you to pause your monthly mortgage repayments for a set period, often up to six months. The terms of the repayment holiday are dependent on your lender, your mortgage deal, and your financial situation.

You may want to contact your mortgage provider to discuss the possibility of a repayment holiday with them. If they agree, it can take the pressure off and give you the space you need to get your finances in order.

However, you should be aware that a repayment holiday may affect your credit and is often only a short-term solution.

In addition, the payments you miss will normally be added to the balance of your mortgage. So, when the payment holiday ends, your outstanding mortgage balance and mortgage payments will usually be higher than they were before the holiday.

Switch from repayment to interest-only

When you make a monthly payment on a repayment mortgage, part of your payment covers the interest, and the rest goes towards repaying the balance of the loan. If you are having difficulty covering these payments, you may want to explore an interest-only mortgage.

Under this arrangement, your repayments will fall as you only pay the interest on the loan. This may relieve some financial pressure – although not all lenders may offer this option.

Remember the balance of the mortgage won’t reduce so interest-only mortgages may not be a long-term solution and you will need to find another way to pay off the balance.

Extend the mortgage term

Extending your mortgage term is another way to reduce your repayments. Essentially, you are spreading the mortgage repayments over a longer period, so each monthly payment is lower.

According to the Which? mortgage calculator, if you have a £250,000 mortgage with a 3% interest rate and a 25-year term, your monthly repayments will be £1,185.53. If you extend the term to 40 years, your payment drops to £894.96.

This is a significant saving but extending the term does mean that you are paying the mortgage for longer and you will pay more interest overall. However, you could subsequently reduce the term again in the future when you are able to afford the repayments. 

Get in touch if you are concerned about your mortgage

We are here to help you address worries about your mortgage costs. We will talk you through your options and find ways to help you make your repayments more manageable.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.

Approved by The Openwork Partnership on 15/05/2023.