Some 18% of borrowers in the UK have changed their mortgage details or come to a new arrangement with their lender in the last three years, new research has found.
Meanwhile, one in 12 have moved to an interest only mortgage and the same number have extended their mortgage term, meaning they could end up paying more, according to the research by Ocean Finance.
It says that despite enjoying more than five years of record low interest rates, the squeeze on real incomes over the same period has left many home owners struggling to keep on top of their monthly repayments.
An interest only mortgage sees the borrower paying off the interest on the loan every month, but not repaying any of the capital, which makes the monthly repayments cheaper. However, this means that at the end of the term they do not own the property and will need to find a lump sum to repay the debt, perhaps by selling their home.
Extending the term of a mortgage might mean extending the period of time they have to repay the loan from an initial 25 years to as much as 40 years. While this means they should pay less each month, it is likely to see them paying more overall due to the interest they will continue to be charged over the extended period of the mortgage.
The firm points out that a longer mortgage term may also mean people have to rethink their future plans, such as working later in life to continue repaying their mortgage, rather than retiring.
The research also found that 3.8% of home owners revealed they had agreed with their lender to make temporary lower payments. Meanwhile, 2.3% of home owners surveyed said they were taking a temporary holiday from making payments.
‘While repossession figures have been low, this has masked the real struggle that many borrowers have had to keep paying their mortgage. As incomes have been squeezed over the past few years, one in six borrowers has had to find a way to reduce their monthly payment,’ said Ian Williams, spokesman for Ocean Finance.
‘Switching to an interest only mortgage or extending the term are both being used as a way to lower repayments. While both of these can help provide short term relief and may serve to keep the roof over people’s heads, it may be that this is simply storing up problems for the future,’ he pointed out.
‘In addition, with the Bank of England currently predicting that it expects to start to raise the base rate of interest in the middle of next year, more home owners may find that they start to struggle, especially if they are still on a standard variable rate or tracker mortgage,’ he explained.
‘It might therefore be worth their while speaking to their existing lender or a mortgage broker about whether they could benefit from switching to a new mortgage now,’ he added.