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In a fix with your mortgage?

It is estimated that in the next 12 months 1.5 million people with a mortgage that was taken out on a fixed rate will find the fixed period coming to an end.

The papers have been full of gloom and doom about what will happen to these people, especially if they have what’s commonly and sometimes incorrectly known as a `sub prime` mortgage? Predictions of repossessions, bankruptcy, huge increases in monthly payments are common – but are they right? Is it the end of the world, or is there life after the `fix`?

Different people – different fixes/

The first thing to realise is that lumping everyone together is misleading. Your situation when your fix comes to an end will depend on a combination of factors; when did you take the mortgage out? Who is the lender and how have they changed their policies in recent months? Are you reverting to a standard variable rate and if so what is it? . Did you have any black marks on your credit record so you got an `adverse mortgage?

Many people with fixed mortgages will have them with mainstream lenders such as High Street banks and Building Societies. In these cases they will mot be paying a premium for having special circumstances such as arrears, ccjs etc so the new rate,  although higher than
the fix,  may not cause them more than minor difficulties.

Timing is everything

When you took your mortgage out is of key importance. If it was before the recent string of bank rate increases, you will be more affected than someone who has taken their mortgage out within say the last 12 months. But even then there is no need to panic - -many experts are now predicting that rates will start to come down so you could find that by the time your `fix` ends, rates have fallen and your new rate is not significantly higher than the old one. No one really knows what is going to happen but it’s not necessarily all gloom and doom.

What happens when your fix ends?

That depends on your lender and the terms of your mortgage. Many borrowers, especially those with mainstream lenders, will find their rate reverts to the lenders standard variable rate. This moves broadly in line with bank rate. so at the moment is rising for most people but could easily start to fall again as the Bank of England tries to keep the economy on an even keel and avoid any economic downturn. Some lenders relate the rate they charge you bank rat,e often being a fixed percentage above it. In the case of people with `non conforming` or adverse mortgages such as the self employed or people with arrears this may be a bit higher than mainstream lenders to reflect the greater degree of risk.

Will my payments automatically rise?
Not necessarily. It all depends on what sort of fix you have and when you took it out. For people who took their mortgage out in the last year, it would not be impossible to find themselves with a lower payment when their fix ends, because if they  move to the Lenders SVR, with rates possibly coming down the actual repayment could fall.

But again, whether the end of the fix causes you problems depends very much on your circumstances. If your salary has increased (and for most people it does) or you have reduced debts and monthly outgoings you may be in a better position to deal with increased monthly mortgage payments in the future..

Be prepared

Don’t panic. Get all the facts and be prepared. Don’t guess at what will happen when your fix ends. Most lenders or your mortgage broker will be able to give you pretty good idea of what your payments will increase to at current interest rates. They can also explain and clarify what sort of deal you are on if you are at all unsure. Don’t be afraid to ask, most will be perfectly happy to assist you.

What will my options be?

The main changes brought about by the financial storms of the last few weeks is that lenders are being more cautious and `repricing their risk`.On the cautious side, they are reducing the amount they will lend against the value of the property and being a  little more rigorous about proof of income. On the latter they are increasing rates, particularly in the adverse market so as to better reflect risk.

But none of this means that there are no options left. Most people will want to see if they can rearrange their mortgage to reduce the interest rate or monthly repayments. This is still possible. Building Societies still want business and there are many new fixed rates on the market. For the `non- conforming` such as the self employed, or the `adverse`, although rates have risen and lenders are being more cautious it is still possible to remortgage. In any case your circumstances may have changed so you will be looked on more favourably.

What to do next.

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