Mortgage support for struggling households: Get help with mortgage payments

The recent Bank of England rate increases have sent tremors through the housing market. UK homeowners, once comfortably ensconced with low fixed-rate mortgages, are feeling the shock as they transition to new fixed or tracker rates.

For many, this means grappling with a multifold increase in their mortgage rate. It’s not just an adjustment they face, but a radical shift in financial planning. Some homeowners face the very difficult decision between repossession and downsizing to an unacceptable level.

But let’s not lose hope. This is a nationwide problem, so you are not alone. If addressed properly, homeowners should be able to avoid missing mortgage payments and deal with this unfortunate situation. This article is intended to help homeowners navigate this difficult mortgage climate.

Understanding the impact

Several homeowners, especially those whose mortgage rates have reached or are nearing the end of their fixed rate terms, are finding themselves caught or about to be caught by dramatic increases in interest rates. The transition from hitherto low to new much higher rates makes monthly outgoings considerably steeper, putting a strain on personal finances. Most homeowners were on mortgage rates of about 2%, but now face rates of about 6%.

On a £200,000 mortgage, the impact of that increase could be as high as £650 per month. Let us consider how it might be possible to deal with this increase:

Break down the possible solution into smaller bite sizes

For homeowners caught by this financial shock, adopting a systematic approach could be the key to weathering the storm. Homeowners might be able to reduce the impact through a step-by-step approach and at least diminish the size of the problem, if not eliminating it completely.

1. 1. 1. Re-mortgage at a lower rate: ( -£150 / mo)
         If your mortgage rate has reached or is nearing the end of its fixed rate term, you may be able to remortgage from standard variable to a lower fixed rate with your existing bank. This can help lock in a more manageable monthly payment.  You could also receive alternative mortgage offers where the payments can be brought down on a temporary basis. This could help lock in a more manageable monthly payment. Many five year fixed rate mortgages are at about the 5% rate – that is still quite high, but could reduce the monthly payment by about £150, leaving another £500 / month of the £650 / month increase to be addressed.#
      2. Tighten your budget: (-£100 to -£200 / mo)
         Taking a hard look at your budget and making cuts to discretionary spending can free up money to channel towards the increased mortgage payments brought on by mortgage hikes . Most of us have tight budgets and only a few of us can afford to eat out or go for a drink with a friend. Even fewer can afford to go on the holiday that they deserve. However, if we can still squeeze out a few small portions from our discretionary spending and contribute another £100 / month towards our mortgage – we will reduce the amount of the increase still to be addressed down to £400 / month
      3. Tap Into Savings: (£-100/mo)
         It might be worth considering taking some money out of ISAs or other savings to help bridge the remaining shortfall in mortgage payments further. While not an ideal solution, this temporary measure could provide relief in times of need.

The above steps could effectively reduce the impact of the mortgage increase from £650 / month down to £300 / mo. Although not quite eliminating the full impact, these could go a long way towards reducing it and, as incomes increase in the future, homeowners might be able to contribute more and reduce it even further over a period of time.

Exploring other solutions: (-£ 650 / mo)

a. Deferral with a part payment: Some banks offer the option to defer payments while still making a partial payment. This can reduce the immediate financial strain. When you are in a difficult situation, pushing the payments out by even a few periods might allow you to organize your finances better. The UK Mortgage Charter is specifically designed to help borrowers with abrupt increases and mitigates the risk of home repossessions by providing a few alternatives which include the conversion of repayment mortgages to interest only for a short period or extending the term of the mortgage.

Please seek the help of professionals or advice from the Citizen’s Advice Bureau if you need further help.

b. Seek housing grants: Your local council might have housing grants that you may qualify for. This may not be for everyone as it targets a small segment of the community, but may assist you in alleviating some of the financial burden if you qualify.

c. Mortgage to shared equity schemes: This scheme allows homeowners to reduce their mortgage burden. Homeowners can receive assistance to reduce their mortgage payment in return for a share in the value of their home. This product has various advantages:

1. 1. 1. 1. It is a long-term solution, as you do not need to make any periodic payment
         2. It does not increase the burden of debt for homeowners
         3. You can repurchase the share of your home when convenient

For homeowners in Scotland, Scotland Shelter (https://scotland.shelter.org.uk) might be able to offer shared equity schemes that could be a lifeline.

Pauzible.com Solution

Pauzible provides a similar solution and it is for everyone with a low-LTV mortgage, as long as you have not missed your payments in the past. Pauzible covers your mortgage shortfall (i.e. the increase in your mortgage payment) while you continue to pay the same amount as before. Pauzible thus effectively allows you to refix your mortgage at a lower rate from your lender by providing you with the mortgage top-up that you require. In return, you provide Pauzible with a fair share in the value of your home.

Pauzible has the following advantages:

• Pay what you can afford
• Pauzible provides mortgage top-ups for up to 5 years
• You can buy back Pauzible’s share anytime during a 10-year period

Pauzible gets your finances back on track so go ahead and join their waitlist so that you can access their product.

Conclusion

In these challenging times, it’s crucial for homeowners to stay informed, explore their options. By taking proactive steps, you can find ways to get help with your mortgage payments and protect your home.

The author is Mr Aivanaa Maraea, Co-Founder and Chief Product Officer at Pauzible. Aivanaa has been working in financial services for several years and has been trading mortgage-backed securities for almost ten years. The Pauzible team has a wealth of experience in dealing with mortgages and working for large banks such as HSBC and Barclays.