Protecting struggling mortgage borrowers from having their properties repossessed in the short term may offer some relief to those fearful of what the future holds – but is unlikely to stem the tidal wave of worry flooding over Britain’s homeowners right now.
Under the measures announced by the Government, those in severe mortgage distress can prevent their home from being repossessed for 12 months.
Struggling borrowers can also request short-term respite measures, such as an extension to the term of their mortgage or switching to an interest-only product.
They can later switch back to their original product, no questions asked, without their credit score being affected for six months. In addition, customers nearing the end of a fixed-rate deal will not only be able to lock in a new deal up to six months ahead but also apply for a better product if it comes along.
These types of measures all help, but they don’t remove the worry for millions of borrowers who are now carefully considering how their finances will cope in the months and years ahead. Whether it is a first-time buyer trying to get a foot on the property ladder or someone remortgaging in the next 12 months, or even in three years’ time, mortgage costs are top of the financial concern list for many.
The reality of rising interest rates, and in turn significantly higher mortgage rates, is that people must drastically cut back their expenditure to ensure they can either afford to get on the property ladder in the first place or have enough money to meet higher repayments as well as their other everyday bills.
This will require a serious adjustment in spending behaviour at a time when households may also have to contend with falling property prices and a general sense that their wealth is on the decline.
With the real risk that the high inflation, high interest rate environment will plunge the country into recession, job security could also become a major concern.
Thus far companies have managed to defend their profit margins by passing on costs to customers, but there could be a tipping point when cost cuts – including job losses – are resorted to instead.
As a result, the Government’s mortgage measures may seem more of a sticking plaster than a lasting solution.
Alice Haine is personal finance analyst at Bestinvest
