Mortgage underwriting criteria has been strict for a long time with banks consciously not lending borrowers as much as many would want to borrow or feel they could have afforded at the time.
Mortgage arrears have been incredibly low and it seems large increases in the BoE base rate have already been factored into calculations, so we can hopefully breathe a sigh of relief that mortgage arrears may not be as bad as they could be.
It must be noted though that with these large increases in mortgage rates it is likely that the default rate will increase.
Other factors contributing to arrears could be that mortgagors may have taken out more credit since they took out their mortgage or their circumstances may have changed (income decreased) and their other outgoings will most likely have increased due to the inflation we are seeing.
If your client is struggling to pay their mortgage, burying one's head in the sand is the worst thing that they can do. Contact the lender as quickly as possible and explain the scenario. Lenders have specialist support teams who can help.
Lenders must treat clients fairly and should work with them to find a way to ensure that they do not lose their home.
They may be able to agree to extend the term of the mortgage, bringing down monthly payments; they may accept smaller payments in the short term; or the borrower may be able to stop making payments for a while in some scenarios.
Any mortgage-holder with a cheap rate at present would do well to examine their monthly finances and re-budget and consider paying more now, so that when rates go up the shock element of the rise is removed.
Re-budgeting now to pay off as much as possible each month can cushion the blow and help reduce your mortgage balance.
Adrian Anderson is a director at Anderson Harris
