Mortgage rates are at a 15-year high, but there are reasons why the pain may not be as bad as it could be.
The cost of a mortgage has now hit, with the average rate on a two-year fixed deal approaching 7% - surpassing the level seen after the Liz Truss government's mini-budget.the Bank of England has saidGiven the severity of the situation, you might expect a wave of homes being put up for sale and the housing market to be in freefall.
Everyone's tipping point from stretched borrowing to unmanageable debt is different, but the number falling over the edge so far is very low.During the pandemic, there were two significant trends among those whose incomes were relatively unaffected by illness and lockdowns. The second trend was high levels of savings, as spending options such as overseas travel were diminished. Some of that money is now being used to pay down mortgages.When lenders received a mortgage application they would "stress test" the finances of the applicant to see if they were able to afford interest rates at a higher level before approving it.
Now, lenders are testing applicants to see whether they can cope with interest rates of 8% or 9% - although each lender's exact requirements are commercially sensitive.A shortfall equivalent to two or more months' repayments means you are officially in arrears That could include extending the term of their mortgage - although that does mean that ultimately they will pay more over a longer period of time. However, lenders are encouraging borrowers to discuss what can be done with them or a broker, rather than burying their heads in the sand.
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