What to do if you're worried about your mortgage repayments

If you’re concerned over making your mortgage repayments, then there are options open to you which may provide some additional breathing space.

There's been a worrying rise in mortgage arrears over the last year as households struggle to keep their heads above water.

The cost of living crisis has seen many monthly bills soar, with mortgages responsible for the most painful hikes for many.

While mortgage rates have fallen slightly in recent months, they are still well above the levels enjoyed before the pandemic, with many homeowners forced to pay hundreds of pounds more a month on their repayments.

This is having a devastating impact on our finances: new Mortgage Lenders and Administrators statistics from the Bank of England reveal that the value of outstanding mortgage balances had jumped a staggering 50.3% in the space of a year.

So what are your options if you’re starting to worry about your mortgage?

Switch your rate if you're on the SVR

The first option here will be to move to a different mortgage product, which hopefully delivers a better interest rate.

This is the rate you move onto after your initial fixed or tracker term ends, and has always been far higher than the best deals on offer.

However, millions of borrowers are sat on their lender’s SVR, often because they don’t really notice much difference in their repayments initially or because they are apathetic about remortgaging.

Yet once Base Rate increases and the SVR likely follows suit, the increases to repayments start to sting.

It’s worth bearing in mind that the average SVR currently stands at a staggering 8.18% so you can easily make a tangible saving by switching to a new mortgage, whether that be a fixed or variable deal.

As an example, the average two-year fix currently stands at less than 5.5%.

Extend your mortgage term

Your monthly repayments are determined not only by the interest rate on your loan, but by the mortgage term too. 

For example, if you took out your loan over a 25-year term then the monthly repayments would be higher than if you borrowed over a 30-year term.

The counter to that is that as it would take you longer to pay off the loan, interest would be charged on the outstanding balance for longer, meaning it costs you more overall.

As a result, if your current repayments are starting to prove challenging then it may be worth speaking to your mortgage lender about extending the mortgage term.

Then, should your financial situation improve in the future you can always start making overpayments, which will allow you to start trimming back the time taken to clear the overall debt, saving you money in the long run.

Move to interest-only

Another option may be to move your mortgage rate to an interest-only basis. 

With a traditional repayment mortgage, some of the money you pay each month goes towards paying down your debt, while the rest goes towards the interest being charged on that loan.

As a result, once you reach the end of your mortgage term, the entire balance has been paid off.

With an interest-only mortgage, your monthly repayments are much smaller because you’re only paying off that interest being charged.

It means that once you hit the end of your mortgage term, you will need to have a plan in place for paying off the money that you actually borrowed in the first place.

Switching to interest-only may help you with your current repayment worries, but you will need to have a plan in place for paying off what will still be outstanding from your mortgage once you reach the end of your mortgage term.

Learn more about the new interest-only rules announced by the Government

Speak to your lender

It’s really important that you speak to your mortgage lender if you’re starting to have real difficulties in making your repayments.

Ultimately, the last thing they want to do is have to repossess your house, since it is an incredibly costly and difficult process.

That’s why they will consider all sorts of different measures to help you get through the current difficulties, like deferring payments or introducing a payment holiday.

Informing them early on in the process means there will be more options open to you than if you leave it to the last minute, too.

And remember, they are more likely to offer some assistance as a result of the mortgage 'forbearance' rules.

Get debt help

Finally, it may also be worth speaking with a debt charity like StepChange or National Debtline.

They can help you get on top of other problematic areas of your finances, potentially freeing up a little extra cash which you can devote to your mortgage repayments.