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Mortgage stress and how to avoid it

‘Mortgage stress’ is a term first coined by Australian financial analyst Martin North of ‘Digital Finance Analytics’ a boutique housing market analyst operating out of New South Wales who I had the pleasure of working with between 2017-2020.  It refers to the squeeze that households face when interest rate increases create pressure on household balance sheets.  Sometimes it is individual households that face this alone, but often there are whole suburbs where the leverage and debt required to buy into a particularly nice suburb or town, or to get the kids into a good school, can very quickly create large numbers of households facing mortgage stress.  What ‘Digital Finance Analytics’ were able to do was successfully map areas where there were higher levels of mortgage stress and in Australia it was quickly discovered that it was often the most expensive housing markets that experienced the highest levels of ‘mortgage stress.’

The increase in the Bank of England base rate between May 2022 – September 2023 has seen mortgage costs rise from circa 1.5% to levels of around 6%.  It was not uncommon in the post lockdown boom of 2021 to see young couples borrowing £1,000,000 to buy their homes in Hertfordshire and with mortgage rates at 1% two years ago, that borrowing was costing £10,000 per year on interest.   Fast forward to the second half of 2023 and that same £1,000,000 mortgage at 6% rates now costs new entrants £60,000 per year in interest alone.   For many this is now making renting more appealing than ownership, for others it may create a headache when their cheap fixed rate deals expire.

The UK housing market now faces a challenge in that over the over the next couple of years there are literally hundreds of thousands of mortgage holders coming off fixed rate deals taken in 2020 and 2021 that will move onto rates that will severely stretch household finances, some simply won’t be able to cope!  So what do you do if mortgage stress happens to you?

The first thing is to be aware of what interest rates are doing and also to be aware of what your exposure will be when you come to renewing your mortgage.  There are many good mortgage calculators to guide you but Ashwell Mortgages are particularly well placed to offer advice to get you through.  It could be a simple case of switching provider, other options include lengthening a loan term, perhaps paying down debt with savings or maybe switching to an interest only product.  There will however be large numbers of households where mortgage stress will create the need to move to try and reduce the amount of household debt.  This will also apply to many late entrant landlords who have seen the biggest spikes in mortgage costs taking payments beyond the level of their rental income.  There will be some landlords whose monthly shortfall won’t be bearable for too long. 

Ashtons team of experts have guided thousands of home sellers through turbulent times for over 40 years, our discretion is assured and we will help to get you and your family through any challenge you may be experiencing.

Whatever you do, if mortgage stress is building in your household, don’t take the ostrich approach, talk to your partner and then take the counsel of the team of experts at Ashtons.  Don’t leave it too late, because while it may be scary, everybody has options and we’ll help you find the right option for you.

Whether you’re looking to
  • buy
  • sell
  • rent
  • let
  • buy
we would love to help.