Mortgage Misery

Higher household bills and lower disposable incomes are piling up the mortgage misery. Here's what to do if your home loan is weighing you down.

Life is looking increasingly tough for mortgage borrowers at present, thanks to rising household bills, higher taxes and, crucially, hikes to the Bank of England's base rate feeding through into higher mortgage rates.

For example, the UK's largest mortgage lender, Halifax, yesterday announced that it had increased its standard variable rate (the rate paid by all borrowers who don't have a special-rate deal) by 0.25% to 7.75% a year. Thus, all Halifax borrowers without a fixed-rate mortgage face higher monthly repayments from 1 August.

In addition, data released today by the Council of Mortgage Lenders (CML) show first-time buyers under tremendous strain. The CML reports that, in May, a typical first-time buyer took out a mortgage of 3.37 times salary, which is an all-time high.

There are loads of other doom-laden numbers out there which make me fear that more and more people will miss mortgage repayments this year. Indeed, I reckon that at least a million repayments will be missed in 2007 by homeowners who fall behind with, or fail to make, their monthly mortgage repayments.

So, what can you do to avoid 'payment shock' of steeper interest rates and the resulting mortgage misery? Missing a mortgage repayment is a strong signal that your household budget is under severe pressure, so you need to act fast to get things back on an even keel. If you're feeling the strain, then you need a plan to stop the financial stress and avoid joining the arrears statistics.

The first thing to do is to keep in touch with your mortgage lender. Call, email or write to customer services, explaining why you're behind this month and what you plan to do to catch up. For example, if you're off sick, out of work, your relationship has broken up, or you've lost a bonus or overtime, then tell your lender without delay. At the very least, this will calm down the credit controllers (the people who chase late payments), because you came to them and not the other way around.

Keeping a roof over your head is vital, so put your mortgage repayments near the top of the list when analysing your essential outgoings. One way to rank your monthly bills in order of priority is to use the acronym THEM FIRST, which is short for:

Tax (you can be imprisoned for not paying your Council Tax)

Hire purchase (if you don't pay, your car or other goods could be seized)

Electricity and gas (to avoid being cut off)

Maintenance and child support

Fines (to avoid prison)

Income Tax

Rent or mortgage (to keep a roof over your head)

Second mortgage (ditto)

Television Licence (prison, again)

Once you've got these essential bills under control (which may involve cutting back and going without), you can then turn your attention to less pressing debts, such as credit cards, personal loans, overdrafts and so on. For more advice on bringing your borrowing to heel, visit the Fool's Get Out of Debt centre.

Finally, we should put these payment problems into perspective. There are 11.7 million domestic mortgages in the UK, so British homeowners will make around 140 million monthly mortgage repayments in 2007. Thus, 99% of all homeowners probably won't miss a single mortgage repayment this year. Then again, financial meltdown beckons for those who can't keep up the pace!

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