Mortgage payment problems? Common sense tips.

Friday, 27th June 2008 11:16 - by Resident IFA

Times are quite simply becoming tough. Many more people are starting to feel the financial squeeze more than at any time in the recent past. Mortgages are most people’s key debt. Based on information on the Council of Mortgage Lender’s (CML) website, there were in excess of 4.8 million fixed-rate mortgages arranged over the years 2003 to 2006 inclusive. Not all of these will be expiring in 2008, but the majority of those arranged in 2006 will, with lesser numbers from the other three years noted i.e. 3 and 5 year products. This is a large number of people who will be moving from an average interest rate in 2003 of 4.23% and 2006 of 5.12% to rates now at least a percentage point higher. In terms of monthly payment, this equates to an increase of over £115 if you take a £100,000 Capital Repayment mortgage over 25 years and apply the above 2003 average rate of 4.23% and a rate 2% higher today. Of course, the average size of today’s outstanding mortgage balances may well be in excess of £100,000, which exacerbates the above increase. What to do to keep hold of your property? Hand back the keys? Get a second job? Sell your soul? To avoid making a pact with the Devil, here are some tips that may help: - Don't hand back your keys. This achieves little and does no good, you still being responsible for the mortgage payments and costs until the property is sold. Even then, you will be liable for any shortfall in sale proceeds if they aren't enough to repay the mortgage balance. - Don’t borrow from others or pay your mortgage on your credit card. This only starts to create a downward spiral. - Talk to your lender at the first sign of trouble. They much prefer it this way and the majority try their utmost to help. - Ask your lender for a payment holiday or reduced payment period. Be sure to understand any effects this will have on your credit record, hopefully none. - Extend your mortgage term to lessen payments. - Change to Interest-only to lessen payments. I am sure that any Financial Adviser will view this as a short-term measure of last resort, the capital balance not being repaid using this method. - Cut unnecessary expenditure i.e. have a cup of instant coffee in the office rather than the High Street latte, cycle to nearby shops or destinations rather than take the car, shop around for the best prices on insurance, utilities and the like, and of course do you really need that DVD you will only watch once or that pair of shoes that will be worn twice and languish at the back of the wardrobe as ‘so last season’?! Most of the above are common sense ‘belt-tightening’ measures. Please remember, lenders don’t want to repossess houses as the hassle and cost involved is undesirable. They would far rather talk to you and work with you in an attempt to carry on receiving profits from the interest you pay them for years to come. For me, I am glad I had a row with Sky a couple of years ago and politely told them where they could place their box...one less expense to agonise over whether to keep or not! Until next time...