Consumer champion Martin Lewis has said that a mortgage ticking time bomb that he previously warned about is now exploding.
The founder of MoneySavingExpert.com told ITV’s Good Morning Britain that he had previously highlighted a “mortgage ticking time bomb”.
He continued: “And I’m afraid that time bomb is now exploding.”
Lewis said people are almost certainly going to have to readjust their finances to cope with higher interest rates.
Lewis’ comments were made as data from Moneyfacts showed the average two-year fixed-rate residential mortgage rate on the market jumped to 6.07% yesterday, up from 6.01% a day earlier.
The average five-year fixed-rate deal is now 5.72%. This is up from an average rate of 5.67% on Monday.
The choice of mortgages has also dropped since Monday, with 4,641 residential products available, down from 4,683 on Monday.
Lewis told Good Morning Britain how he had given his views during a mortgage summit held by chancellor Jeremy Hunt last year.
He commented: “I talked about banks increasing their margins, in other words they’re putting mortgages up and they’re not putting savings up by as much, so they make more money.
“And what we really need is soft or hard political pressure right now to say to them either you make things better for mortgage holders or you make them better for savers, or best, you make them better for both.”
He added: “But we’d got a lot of the banks sitting there and nodding.
“And many of the things I suggested they argued they were already doing, like you could change your term, you could take a payment holiday, you could reduce the amount you pay temporarily, you could switch to interest-only.
“But the big problem for me is they haven’t made that easy.
“And what I was suggesting in that meeting is, first of all those things need to be made reversible, so you know that if you can do it temporarily you can go back without a problem. That isn’t the situation.
“And second, they need to look at minimising the impact on people’s credit scores, because that puts people off taking a form of action, it scares them that they’re going to be disenfranchising themselves from other forms of borrowing for six years, but again, that hasn’t happened.
“So the ultimate result of that mortgage summit was a tiny bit more communication to borrowers.”
Lewis continued: “It’s about giving people flexible tools.
“And this is really important, because ultimately there is very little that we can do to protect people.
“If interest rates are going to be high over three or four years, people are going to have to readjust their finances.
“There is nothing else we can look at, they’re going to have to readjust their finances. And that’s going to be a nightmare.
“I can’t see this government bringing in a mortgage rescue package, even if it wanted to do so.
Lewis believes the mortgage squeeze is going to take it out of many mid and mid to high earners.
He also warns that the impact on mortgages has a big knock-on effect for many renters, who are seeing record proportions of their disposable income going on rents at the moment.
He continued: “We’re heading for trouble. And I think the whole point of what I called for last October and why we had the meeting in December was the idea was you have to come up with the plans and put some of the mitigation measures in place before you get to the crisis.
“Because when you do it, once you’re in crisis, it’s already too late. And we had that meeting and we didn’t do it.”
Reflecting on the recent surge in mortgage borrowing rates, Lewis said that “the idea of them going back to where they were is not looking on the cards”.
“And in fact the current prediction for interest rates is they’re going to continue to rise now, the UK base rate’s at 4.5%, going up to 5.5%, 5.75%,” he continued. “Now the fixed rates you’re seeing now are factoring those rises in, so they may come down a little bit. But if we’re going to have interest rates at 5% in the long run, we’re not going to see fixes come down.
He added: “What I would suggest is anybody who is struggling, speak to a good mortgage broker, that’s their job, to talk you through what’s available.
“If you can’t pay, talk to your lender as soon as possible.”
Yes, the ‘time bomb’ has exploded and the sadness will be the victims of ‘Help to Buy’, many in Negative equity. Those who aspired to own their own home, worked and saved hard to get it, overpaid due to the premium leveraged by housebuilders. Now under huge financial pressure, maybe the Govt deposit still to repay, plus the mortgage, plus cost of living……after a few more months as property prices fall even further….then realise they have £100,000 negative equity….. and will just walk away.
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And that is why I hate the new Help to Buy scheme, it was only a benefit to the homebuilders. I used the original one back in 2005. I bought a flat using a 25% ‘loan’ from the Government, and when I sold it 10 years later, I repaid the original amount, even though technically I sold at less than I bought it for. But even if I had sol it for more, I would only have had to repay 25% of what I sold for. It wasn’t a new build, it was a 1970’s build I think, and it worked for us as a young couple, through marriage, one child and until said child needed more outside space.
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He’s stating the obvious of course, but someone with influence needs to say it, loudly and often.
The government are doing absolutely nothing, and many people are going to suffer for it.
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What do you expect them to do ?
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Reality check and if you are on the receiving end, not good news that you already new! You were warned before you entered into the loan agreement, how many times? of the risks at the end of the fixed term. e.g. Mortgage advisor, lender, FCA, solicitor, possibly family and friends.
You never had it so good with low interest rates which were never written in stone and EVERYONE expected to rise and you were expected to prepare for. While I appreciate the cost of living etc has increased and is mitigating circumstances for those that borrowed what they could not afford long term, its not for government to bail out all those who continued to live beyond their means without a care in the world for what was coming. Rates were always going to rise and they are still below the norm.
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100%
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Totally agree with that.
Money has been cheap and far to easy to get hold of; a re-adjustment is required asap to remove a proportion of money from the economy and help dampen some of the ‘controllable’ inflation. Threadneedle Street was slow to put up base rates and should have followed the US sooner, who did it in a far more gradual manor over a longer time period. Furthermore, the housing market was partly revved up with the stamp duty holiday – great for agents, developers, solicitors etc, but helped take the seatbelt of an already starting to roar housing market… As a country we have the lowest saving deposits of any major economy and are poorly prepared for additional mortgage costs. Inflation is higher than other G7 economies with the elephant in the room being the effects of Brexit to grapple with – with the obvious additional costs of importing goods/food etc following an exit form the largest and richest trading bloc in modern history, resulting in a wonderful self inflicted kick in the plumbs that has wound up inflation even further . It will be a fascinating year ahead in the UK housing market – a lot of winners and losers, but not in equal measure.
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