What to do if you can’t afford your mortgage
24th October 2022

Dear Sarah,

Two years ago I bought a small house in Kent to live in but couldn’t afford to do it unless I kept my flat in London and rented it out, giving me a bit more income to top up my salary.

As a result I have two mortgages – a buy-to-let mortgage on the London flat and a normal mortgage on my home in Kent. Both are with NatWest and both of my fixed rates end in March.

I’ve looked at how much it’s going to cost me to remortgage and it is alarming. I’m paying £260 a month on the London flat and £727 a month on my home. Interest rates have risen so much that my buy-to-let is going up by more than £500 a month.

I am terrified because I just can’t afford that kind of extra money. What can I do?

Lola Griffin, by email

Firstly Lola, please don’t panic. It might feel as though you are heading for financial ruin – especially with news headlines predicting mortgage Armageddon – but you’re not.

I won’t pretend things are going to be simple or that you won’t have to make some adjustments, but you are fortunate in that you have choices and your finances are in pretty good shape.

You’ve got a number of options and the good news is that even though your mortgage deals don’t end for another five months, you can sort this out today and give yourself peace of mind and some certainty about your finances for the foreseeable future.

We asked independent mortgage adviser Jonathan Burridge, director of We Are Money, to take a look at your case. Here’s what he said:

‘Lola’s costs are increasing and given the current state of the economy, that’s unavoidable.

‘But she does have plenty of options and even though it may require some adjustments to her lifestyle, it would appear to be manageable.

‘I’ve made some assumptions based on typical monthly expenses such as energy bills, council tax, food and broadband, TV and mobile and come up with some scenarios for her. In no particular order.’

Lola’s finances

Age: 50
Employment: Full-time employed
Salary: £42,000
Fixed monthly loan repayments: £300
Savings: £0
Credit rating: Good
Marital status: Single
Dependants: None

Lola’s mortgages

London flat

Mortgage: Buy-to-let
Repayment type: Interest-only
Current mortgage rate: 1.79%
Monthly rental income: £1,300
Monthly payment: £260
Outstanding mortgage balance: £174,000
Loan-to-value: 53%
Remaining term: 19 years

Kent cottage

Mortgage: Residential
Repayment type: Repayment (interest plus capital)
Current mortgage rate: 1.26%
Monthly payment: £727
Outstanding mortgage balance: £149,000
Loan-to-value: 50%
Remaining term: 19 years

Option 1: Transfer

NatWest is among several lenders that will allow you to transfer your mortgage to another of their deals up to six months before your existing deal ends without charging you early repayment penalties.

Based on your finances, you would qualify for a product transfer of your Kent home’s mortgage with NatWest taking you on to a two-year fixed rate of 4.89 per cent.

Without changing the terms of your mortgage, that would take your monthly repayments from £727 to £1,022. If you also transfer your buy-to-let mortgage on to another NatWest deal, it’s likely you’d be offered a two-year fixed rate at 
4.94 per cent, taking your monthly interest payments from £260 to £720.

Assuming your income remains the same, you would see the amount of spare cash you have left to spend or save each month fall from around £800 to £70.

Option 2: Extend your mortgages

You’re 50 years old and have 19 years left on both mortgages. NatWest will lend to you up to the age of 75 so long as you’re still working, as will Santander and HSBC.

Although it will cost more in interest over the long term, you could extend the term of your existing mortgages up to 25 years which would bring down your monthly repayments, even though the rates are higher.

Halifax has a two-year fixed rate mortgage at 5.11 per cent which you could take over 25 years, bringing your monthly repayments on your Kent home to £884.

The Mortgage Works has an interest-only two-year fixed rate at 5.04 per cent which, taken over a 25-year term, would mean your buy-to-let mortgage payments would rise to £731 a month. The next three options are impossible to cost here as there are too many variables, but these are some other routes you could take.

Option 3: Part and Part

Switching your residential mortgage to part interest-only and part repayment would reduce your monthly payments but will cost more over the long term as it’ll take you longer to pay off the loan. In this scenario, your proposed repayment method for the interest-only element would be the equity you have in your buy-to-let property.

Option 4: Sell up

You could sell your London flat and use that equity to pay off either part or all of the mortgage on your Kent cottage completely – cutting your monthly costs considerably.

There would likely be capital gains tax to pay if you took this route, so talking to a specialist adviser would be sensible.

Option 5: Debt consolidation

You’re paying £300 a month on unsecured loans at the moment. You could consider borrowing a bit more on your mortgage to pay those loans off completely which would give you a bit more disposable income each month.

You’d need specialist advice because it may or may not make sense, depending on how big these loans are and the terms and interest rates you are paying.

So what should you do?

Whatever you decide to do will be dependent upon your longer-term plans. Does the buy-to-let property form part of your retirement planning? Are you likely to inherit any money in the future? How long do you plan to keep working?

This is why it’s so important to talk to an independent mortgage adviser. They would explore each option and it could be that a combination of several is decided upon.

One other thing. The reason I’ve used two-year fixed rates is because we really don’t know where the economy will be in two years – interest rates are going up, yes, but part of the reason mortgage rates are up so much is because markets are spooked.

There are five-year options available, too, which may be more appropriate but that’s part of the conversation you’ll have with your broker.

Figures are approximate for illustration purposes.

Got a mortgage question for Sarah? Email [email protected]

What to do if you can’t afford your mortgage

Don’t panic! Sarah has some advice if you cant afford your mortgage (Picture: Getty Images/iStockphoto)

  • Don’t panic. It is important to remember that it is a lender’s job to lend. That’s how they make their money. They want to find a way to keep you in your home.
  • Contact your mortgage broker to discuss your options. There may be alternatives you had not considered, and they’ll be well placed to crunch the numbers for you.
  • Contact your lender, though be prepared for long call waiting times as everyone is doing this now.
  • Consider extending your mortgage term to bring monthly payments down – but remember, that’s more expensive in the long run. You can shorten the term again in the future when you can afford it.
  • Repay some of your mortgage in a lump sum if you have capital. Check your terms and conditions before you do that and always speak to a broker first.
  • Switch part or all of your mortgage to interest-only – it will be more expensive long term but could improve your monthly cash flow in the short term.
  • Downsize. A smaller mortgage means lower monthly payments.
  • Ask for help. Free and confidential advice is available from: StepChange Debt Charity (0800 138 1111); PayPlan (0800 280 2816); National Debtline (0808 808 4000); Citizens Advice (0800 144 8848); Debt Advice Foundation (0800 622 61 51), and Turn2Us (0808 802 2000).

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