With homeowners paying increasingly expensive mortgage repayments, Jeremy Hunt’s proposed idea of ‘stretchy’ mortgages could save them more than £170 per month, according to the latest mortgage market analysis by Octane Capital.
For many homeowners there is a real risk that increasing mortgage costs, amidst wider cost-of-living and energy price increases, could lead to missed payments and a greater risk of repossessions in the coming year.
In an attempt to stave off this issue, Chancellor of the Exchequer, Jeremy Hunt, has floated the idea of ‘stretchy’ mortgages – which would allow people to temporarily increase their mortgage repayment period from 25 years to 35 years – potentially resulting in the average mortgage repayment falling by £171 per month.
Jonathan Samuels, CEO of octane capital, said: “There are many homeowners across the UK who are feeling the strain of rising mortgage costs this Christmas, and while we wait patiently for economic improvement in 2023 it might be a wise move to try and protect against the risks of missed mortgage payments, and worse still, repossessions.
“The Chancellor’s stretchy mortgage suggestion has the potential to provide some temporary relief for struggling homeowners, while affording more time for the Bank of England to get a handle on inflation, and rising interest rates, which are currently being pushed up by wider economic uncertainty and energy costs.”
The current average UK house price sits at £294,559, and with an average deposit of 25% (£73,640), this means buyers are taking out standard variable rate mortgages to the tune of £220,919.
With an average mortgage rate of 5.42% paid over 25 years, the average monthly mortgage repayment is now £1,346, or £998 for interest only payments.
Were Hunt’s proposed idea to be implemented, it could provide some much-needed relief to struggling homeowners, especially if Bank of England rates hit 5%, with history suggesting that in this scenario the average mortgage rate could rise to 6.95%.
If this is coupled by what Lloyds Bank predicts will be a -7.9% decrease in house prices in 2023 – the average monthly mortgage repayment will be £1,432.
As a result, thinking outside the box could well be needed to help homeowners cope with the bumps on the road to recovery next year.
