UK housing experts estimate that over 1.4 million homeowners are facing potential mortgage payment hikes of up to 60% once their current cheap fixed rate mortgage deals end. Many of those borrowers will find they are unable to remortgage due to tighter lending restrictions imposed by banks and building societies and therefore could struggle to meet the increased repayments, potentially sparking a massive rise in house repossessions.
Indeed, the situation is considered so serious by the Council of Mortgage Lenders (CML) that it has taken the extraordinary step of suggesting that some borrowers would be better advised selling their property now, rather than risk losing it in the future through repossession. With the housing market already showing signs of slowing, according to the UK's biggest building society Nationwide, forced sales would represent a further knock in confidence.
Although borrowers with a high percentage of equity, excellent credit ratings and the correct affordability ratios will find discounted or fixed-rate remortgages fairly widely available, many who have very little equity or none at all plus a less than perfect credit rating will have little choice but to move to the costly standard variable rate. The worst-case scenarios figures make unpalatable reading; a borrower with a fixed-rate mortgage currently paying £890 a month on a typical £150,000 mortgage would need to find over £500 per month to meet the new repayment of £1,425 on a variable rate mortgage, a rise of just over 60%, but even hikes of 30% will be commonplace according to Michael Coogan, director general of the CML.
Indeed the situation is so bad that the CML is appealing to the Bank of England to cut base rates to help ease the pressure on homeowners. Coogan said: "The double impact of the credit crunch and the near collapse of the Northern Rock means that we are facing very difficult times. We have a number of uncertainties in the market, and we still haven't recovered from those two seismic events."
Even though the credit crunch crisis originated in the United States, because of the nature of the global financial markets it has had a devastating effect on UK remortgages and other mortgage products. Indeed the effects could be around for many years. Remortgages at reasonable rates will soon be in short supply as an increased number of borrowers chase a decreasing number of products, in their need to avoid swingeing increases in monthly repayments. According to the CML estimates the future for those borrowers seeking remortgages looks very bleak indeed.
