What Should I do if I'm Struggling to Pay My Mortgage?

Rising interest rates are bringing mortgage worries to the fore 

As the cost-of-living crisis continues to bite, household finances are being stretched with many struggling to meet the increased costs of essentials and having little or no savings to fall back on. This can lead to some families having problems making monthly mortgage repayments.   

 It is essential for households that find themselves in this situation to have access to the right advice and information. Rising interest rates are bringing mortgage worries to the fore for many homeowners, but the key thing to remember is you are not alone. 

 If you find yourself in this unfortunate position and can’t pay your mortgage, or think you might struggle to make your payments in the coming months, despite what some people believe, telling your lender you are having problems paying your mortgage does not mean they will start to repossess your home.  

 Lenders are very sensitive to the rising number of people facing a squeezed household budget, and if they know there is a problem they will do everything possible to help. The earlier your lender knows that you are facing financial difficulties, the greater the chance that you will be able to find a solution.  

 Options to help you through a difficult time 

 If you’re finding you can no longer afford your mortgage repayments, there are options that could help you through this difficult time. We’ve provided answers to some typical questions you may have. 

 Q: What should I do if I think I might miss a mortgage payment? 

 A: If you’re worried about missing a mortgage payment, the first thing you should do is contact your lender as soon as possible. They will try to work with you if you are experiencing financial difficulties and offer you help and support. Remember, you’re likely to have more options if you contact your lender before you’ve missed a payment. 

 Q: Will I lose my home? 

 A: Repossession is always a last resort. Your lender doesn’t want to evict you and will only take this step if there really is no other option – in fact, there are rules in place that mean lenders must attempt every other option available to them before they take legal action. 

 Instead, they will work with you to try to find a way to make your mortgage repayments affordable. 

 Q: What are my options if I can’t pay my mortgage? 

 A: There are three main options if you’re struggling to pay your mortgage and the best option for you will depend on your individual circumstances. 

 1: Extend the length of your mortgage term 

 If you’re experiencing financial difficulties, you may be able to extend the length of your mortgage term. Doing so will lower your monthly payments and give you more time to repay your mortgage. You should speak to your lender about this option as soon as possible. 

 Extending your mortgage term will increase the total amount of interest you pay over the life of your loan, so you should only consider this option if you’re certain you can’t afford your current monthly payments.  

 2: Change to an interest-only mortgage 

 Changing to an interest-only mortgage can be another way to reduce your monthly payments and give you some breathing room financially. However, there are some things you should keep in mind if you’re considering this option.  

 While an interest-only mortgage will lower your monthly payments, it will also mean that you’ll owe more money when the loan term is up. You’ll need to have a plan in place for how you intend to pay off the remaining balance. 

 Switching to an interest-only mortgage may impact your ability to refinance or sell your home in the future. If interest rates rise or property values fall, you could end up owing more than your home is worth. 

 Before making the switch to an interest-only mortgage, bear in mind that this is a big decision that shouldn’t be taken lightly. But if you’re confident that it’s the right move for you, an interest-only mortgage may give you some much-needed financial relief in the short term. 

 3: Request a payment holiday 

 If you’re experiencing financial difficulty, lenders will look to see if they are able to offer you a payment holiday, typically up to three months. This will hopefully give you some breathing space to get your finances back on track. 

 If you’re considering taking a mortgage payment holiday, speak to your lender first. They’ll be able to advise you on the best way to proceed, and will also be able to tell you if there are any fees or charges associated with taking a payment holiday. 

 It’s also worth bearing in mind that taking a mortgage payment holiday will extend the term of your mortgage, and so you’ll ultimately end up paying more interest over the life of the loan. However, if you’re in a difficult financial situation, a mortgage payment holiday may be the best option for you. 

 Q: Will it impact my credit score? 

 A: Taking out a mortgage payment holiday may impact your credit score. But it will depend on a number of factors, including the lender you are with and how they report missed payments to the credit agencies.  

 However, in general, taking a payment holiday is not likely to have a significant impact on your credit score as long as you make up the missed payments as soon as possible. If you do not make up the missed payments, or if you miss multiple payments, then your credit score could be negatively affected. 

 This may make it harder to borrow money over the short term. But there are steps you can take to improve your credit score once you get your finances back on track.  

It’s good to talk 

 If you are struggling financially you should not bury your head in the sand, you should contact your lender as soon as possible to discuss the options available to you. For further assistance, speak to The Surrey Mortgage Broker – telephone 01252 759233 – email richard@thesurreymortgagebroker.co.uk

Wealth Distribution - Bank of Mum and Dad

More older Britons helping younger generations become first-time buyers 

 There is a growing tendency among older Britons to use the wealth held in their property to help younger generations become first time buyers, new research suggests[1].  

 Homeowners, particularly those who are mortgage-free, are planning to use investments, as well as their property, to help other family members move onto the property ladder.  

 First-time buyers 

 The research findings show that the average age people pay their mortgage off is 51. After this, property and other wealth tends to start being spread through the generations. Of the respondents, 14% say they have already helped their children to become first-time buyers.  

 A further 19% say they will ‘definitely or probably’ do this. In 2016, more respondents (19%) said they had already helped their children to become first-time buyers, yet fewer (13%) were ‘definitely or probably intending to’ compared to now[2]. 

 Shifted upwards  

 The research also highlights an increase in the number of people ready to help other family members, not just their own children. In 2022, 5% say they have already helped their grandchildren become first-time buyers, with a further 20% saying they are definitely or probably going to. 

 This proportion has shifted upwards in the last six years. In 2016, 3% had already helped their grandchildren to get onto the property ladder and 14% intended to. The same pattern emerges when it comes to helping members of the wider family to buy a home. In 2022, 3% say they have already helped with this, and a further 9% intend to, compared with 2% and 3% respectively in 2016. 

 Property ladder  

 It’s no secret that many younger people tend to encounter difficulties when seeking to enter the property market for the first time. The degree to which existing homeowners are now prepared to use their own wealth to help their other family members onto the property ladder has increased notably over the last six years. 

 The amount of money older relatives are giving to younger generations has also increased, with the typical total amount given now standing at £31,398.63, 25% higher than in 2016. Increasingly, older homeowners are a source of funding for their children and their grandchildren, and are using a greater variety of means to help younger family members out. 

 Noticeable shift  

 There is also a noticeable shift towards using property wealth over other sources of income to provide help to other family members hoping to buy a home. In the research, the use of financial help sourced through property wealth has more than doubled compared with six years ago, with 40% using property assets in a number of ways, led by downsizing and equity release. 

 In 2016, most financial help was sourced through using savings and investments to provide money for a deposit (71%), or to buy a property outright (10%). A further 3% cashed in pensions or used pension savings to enable this. Property wealth was used to help other family members in 17% of cases, mostly by releasing capital through downsizing or equity release. 

 Property wealth  

 Clearly more and more people are willing to use their property wealth in a variety of ways, and this is starting to become the norm for those wanting access to cash to help other family members. Six years ago, fewer than one in five people used wealth held in their property to assist other family members and this has now grown to 40%. 

 It is becoming increasingly accepted that wealth held in property should be considered part of someone’s total assets and can be used for a variety of purposes, including to help younger family members buy a home like their parents and grandparents did.  

Are you ready to buy your first home? 

When it comes to choosing the right first-time mortgage, we understand that everyone’s circumstances are different. To discuss your mortgage options, please contact The Surrey Mortgage Broker – telephone 01252 759 233 – email richard@thesurreymortgagebroker.co.uk

Source Data 

 [1]  Aviva research conducted for Aviva byCensuswide April 2022. 1,507 general consumers aged 45+. 

 [2] Aviva Real Retirement Report conducted for Aviva by ICM Unlimited April 2016. 1,506 general consumers aged 45+

Getting a Mortgage when You Are Self Employed

It’s proving your financial stability that can take the extra time and effort 

 The mortgage market has come a long way in recent years and self-employed borrowers now have more choices available to them. However, getting a self-employed mortgage can still be tricky, as lenders often require proof of income and business finances. 

 There’s actually no such thing as a ‘self-employed mortgage’ – mortgage products are the same whether you are employed or self-employed, but lenders consider self-employed applicants to be higher risk and consequently subject them to more scrutiny than employed mortgage applicants. 

 Approval success 

 As with any mortgage applicant, the higher your deposit, the more borrowing options are likely to be available to you – and often at more competitive rates. When applying for a mortgage on a self-employed income, being able to put a bigger deposit down can be even more advantageous in increasing your odds of approval success. 

 As of July 2022, there were around 4.29 million self-employed workers in the United Kingdom. During this provided time-period, self-employment in the UK has grown steadily, from a low of just 3.2 million in December 2000 to a peak of over five million at the start of 2020[1]. 

 Financial stability  

It isn’t necessarily harder to obtain a mortgage if you are self-employed, but it tends to require more paperwork and screening to have your application approved. Depending on the lender, the lending criteria may differ slightly, although most now offer the same deals to eligible applicants regardless of whether they are employed or self-employed. Overall it’s the additional work in proving your financial stability that can take the extra time and effort. 

 Ultimately, all lending applications are underwritten to ensure that the applicant can afford to repay the debt. When you are self-employed, your income tends to fluctuate, and no one specific person can satisfactorily confirm your salary details. Consequently, lenders need to collate more information to determine that you are eligible for the loan you require.  

Did you know? 

 When applying for a mortgage, you are classed as self-employed if you 

• are a sole trader 

• are a partner of a business on a self-employed basis 

• earn your primary income from owning a 20% or more stake in a limited company 

• are a partner in a limited liability partnership 

One of the biggest challenges 

 Most lenders need to verify an applicant’s self-employed financials over the previous two or three years. This can be one of the biggest challenges facing self-employed people, with some having no choice but to wait it out until they have sufficient evidence to back their applications up. 

 To prove your self-employed income you will typically need to provide two or more years of accounts that clearly detail your income, as well as your business’s expenses and overheads. These accounts will preferably have been prepared by a chartered accountant. In addition to these accounts, lenders may request a copy of your Tax Calculation (used to be called SA302) form, and an HM Revenue & Customs (HMRC) tax year overview for the past two or more years. The Tax Calculation shows what you earned and the tax due and the Tax Year Overview confirms how much tax you have paid. The Tax due on the calculation needs to match the tax paid on the Overview. 

 Current earnings  

 The SA302 form is issued to individuals who derive income outside of the PAYE system to assist them in proving their income and any tax deductions. A lender will use these documents to verify your previous and current earnings, but they will also want to see some proof of future earning prospects. Depending on your business setup, lenders may request copies of current and upcoming contracts, expected commissions, etc. 

 When preparing your proof of self-employed earnings, you need to consider how lenders will perceive them. For example, if you have experienced some falls in income it’s vital that you can satisfactorily explain the reason for these fluctuations to minimise the lender’s doubt in your financial stability. Include any relevant proof to back up your explanations.  

 Taxable income 

 It’s quite possible that in the past, you and your accountant have used whatever legal methods available to reduce your taxable income. However, now that you want to apply for a loan, you need your income to be the largest figure possible. 

 If you are a director of a limited company, you may choose to retain some profits within the business, rather than withdraw them as dividends or salary. Some lenders will include a business’s retained profits when considering your application. However, not all do, so it would be prudent to find one that does before you begin your application process. 

 Financial circumstances 

 As a sole trader, the amount you will be eligible to borrow will be calculated by taking an average of your verified profits as stated on your self-assessment tax returns. If you are a limited company director, the calculation may be based on either salary plus your share of net profit, or your salary plus any dividends.  

 But, again, each lender’s process can differ, with some using the latest year’s figures and others using a two or three-year average. That is why it is vital to take the time to find the lender whose process best suits your financial circumstances. 

 Mortgage application 

 Lenders typically take an applicant’s general spending habits into consideration, too, and they will likely request copies of your bank statements. Most lenders will scrutinise all spending, including household bills, childcare and leisure outgoings to ensure that you will be able to afford the repayments. 

 As with any mortgage application, lenders will also need to conduct credit checks to ensure that you are a reliable borrower. Therefore, it’s prudent to get a copy of your credit score before lodging an application to see if there is anything that needs addressing first.   

Looking for a mortgage lender that best suits your circumstances? 

If you are self-employed we can assist in matching you with a lender that best suits your circumstances. We’ll advise on what you are likely to be eligible for and assist you with the application preparation. To find out more and discuss your options, contact The Surrey Mortgage Broker – telephone 01252 759233 – email richard@thesurreymortgagebroker.co.uk

Source data: 

[1] https://www.statista.com/statistics/318234/united-kingdom-self-employed/#:~:text=As%20of%20July%202022%2C%20there,at%20the%20start%20of%202020

The Rental Factor - Landlord Dilemmas

Landlords facing a dilemma – to raise rents or support tenants 

 Landlords are facing a real dilemma at the moment in dealing with the continued rising cost-of-living crisis. This is causing concern among many landlords, as they face a decision to raise rents or support their tenants by taking a financial hit themselves, according to research[1]. 

 Around three-quarters (74%) of landlords say they feel a responsibility to support their tenants during times of financial hardship and, with the cost of living continuing to rise, more than four in ten (44%) have financially supported their tenants during the last 12 months, such as reducing or pausing rent.  

 Financial challenges 

 The research shows that some landlords are prepared to reduce their rents by an average of 7.6% before coming under pressure – equating to around £50 per property a month based on a typical landlord’s rental income[2]. 

 While many are able to reduce rent, close to half (45%) of all landlords say any reduction would harm them financially. Around four in ten (38%) said they intend to keep rents the same for the next year despite the financial challenges, while more than half (55%) say they need to increase rents over the next 12 months. One in four (25%) plan to raise the rent on all their properties. 

 Larger portfolios  

 Landlords with larger portfolios are more likely to increase rent on at least some of their properties, the research highlights. Three-quarters (75%) of those who own more than ten properties aim to increase their rents over the next 12 months, compared to just 44% of landlords owning between one and three properties. 

 In fact, 46% of those landlords with a small portfolio plan to keep rents the same. Across the regions, landlords in Yorkshire & The Humber (68%), outer London (65%), the North West (63%) and Wales (63%) are most likely to increase rents on some or all of their properties over the next 12 months. 

 Rental payments 

 Those landlords using their rental properties to offset their mortgages are also more likely to raise rents, with nearly two-thirds (63%) planning an increase compared to just 44% of unleveraged landlords. 

 Despite the plan to increase rents, well over half (57%) of landlords are concerned about whether their tenants can maintain their rental payments, with more than one in ten (13%) admitting they are very concerned. This increases to nearly three-quarters (74%) of landlords who let to claimants of Local Housing Allowance and 71% of landlords who let to retired people. 

 Support provided  

 Regionally, landlords in East Midlands (74%), Wales (70%) and Yorkshire & The Humber (62%) appear to be most concerned about the ability of their tenants to pay the monthly rent. However, perhaps unsurprisingly, only around a third (32%) of landlords in Central London are worried about receiving their rent. 

 In terms of the support offered to tenants by 44% of landlords, temporary rent reductions and rental payment holidays are the most common options. Support provided includes: temporary rent reduction (22%); rental payment holiday (15%); permanent rent reduction (4%); and lent money to support their day-to-day living (3%). 

 Smaller portfolios  

 Landlords with smaller portfolios are able to reduce rents by a slightly higher amount. Compared to the average of 7.6% for all landlord types, those with one property can reduce by an average of 8.7%, while those with two or three properties are able to reduce rents by 9.3%.  

 Of those who could reduce rents, nearly half (47%) of them say they could sustain it for six months or more, while 42% say they could keep the reduction going for between three and six months. Those landlords making a full-time living from their lettings activity (60%) and those who are retired (51%) are significantly more likely to say they could sustain the rent reduction for more than six months.  

Looking for a buy-to-let mortgage? 

 Whether you’re thinking about buying to let or expanding your property portfolio, to discuss your options contact The Surrey Mortgage Broker– telephone 01252 759233 – email richard@thesurreymortgagebroker.co.uk 

Source data: 

 [1] Research conducted by BVA Group / BDRC with 729 UK landlords between January and March 2022. 

 [2] Source: BVA BDRC’s Core Landlords Panel tracker. Mean annual per property gross rental income: £7,625.

Moving home?

Tips to help you get ultra-organised for your big move 

 Making the decision to move home is a big one. From changing lifestyles to the ‘race for space’, there is no shortage of households looking to up sticks. 

 Whether you’re moving to be closer to the great outdoors, or simply for work and family reasons, there’s no doubt that getting the keys to a new place is an exciting prospect. But it’s also true that all this upheaval brings the potential for stress.  

 Once you’ve put your property on the market, there’s a lot to think about – from finding the right buyer to dealing with the legalities of selling up. 

 But don’t worry, we’re here to help. Follow our top tips and you’ll be moving into your new home in no time: 

 1. Get your paperwork in order 

 The first step is to get your paperwork in order. This includes things like your mortgage offer, proof of income and ID, and any information relating to the sale of your property (such as estate agent contracts). 

 2. Find a good conveyancer or solicitor 

 Once you’ve got your paperwork sorted, it’s time to find a good conveyancer or solicitor. They’ll be able to help with the legal aspects of selling your property, and it’s worth getting a few quotes before you make your final decision. 

 3. Get your home valued 

 It’s also a good idea to get your home valued by a professional. This will give you an idea of how much your property is worth and can help you negotiate with prospective buyers. 

 4. Find the right estate agent 

 When you’re ready to put your property on the market, it’s important to find the right estate agent. They should be experienced in selling properties like yours and should be able to give you advice on things like pricing and marketing. 

 5. Set a realistic sale price 

 Once you’ve found an estate agent, it’s time to set a price for your property. You need to be realistic, as overpricing your home can put off prospective buyers. 

 6. Prepare your home for viewings 

 Once you’ve set a price, it’s time to start preparing your home for viewings. This includes things like decluttering, cleaning and making any necessary repairs or improvements. 

7. Handle viewings and offers 

 When you start getting viewings, make sure you are prepared. Your home will need to be available for viewings to show people around at short notice, so be ready to answer any questions they have. 

 If you receive an offer on your property consider it carefully before making a decision. If you’re not happy with the offer, you can negotiate with the buyer or look for another buyer. 

 8. Exchange contracts and move out 

 Once you’ve accepted an offer on your property, it’s time to exchange contracts. This is a legal agreement between you and the buyer, and means that the sale of your property is now legally binding. 

 After exchanging contracts, you’ll need to start packing up your belongings and arrange for them to be moved to your new home. Once everything is ready, you can hand over the keys to the new owners and start your new life in your new home! 

Ready to discuss finding the right mortgage for your new home?  

We’ll help make your move a good one. If you’re thinking of buying your dream home, we’re here to help find the mortgage that’s right for you. To find out more, contact The Surrey Mortgage Broker – telephone 01252 759233 – email richard@thesurreymortgagebroker.co.uk