Mortgage brokers are warning about the impact of arrears on households after a family hit by a health crisis was left on an 8.25% standard variable rate. The couple, who had a Help to Buy mortgage, fell into arrears after the husband needed urgent kidney surgery and his wife donated a kidney to him. With their fixed deal expired, they cannot switch products because lenders require arrears to be cleared first.
Trapped on high rates
Darryl Dhoffer, founder of Bedford-based The Mortgage Geezer, told Newspage that his client's wife would need 9.5 years to clear the arrears at 8.25%. If lenders allowed a 6.5% rate conditional on overpayments, the arrears would clear in 5.5 years, he said. "This common-sense approach would deliver a superior outcome for both parties: the debt is recovered much faster, and a hard-working family is given a realistic pathway back to financial stability rather than being penalised indefinitely by a high variable rate."
Stephen Perkins, managing director of Norwich-based Yellow Brick Mortgages, described mortgage arrears as a "vicious circle." He said: "Once payments are missed, a borrower may find their options with other lenders reduce, yet staying on a higher rate can make it even harder to catch up. There is a sensible argument for lenders having more flexibility to move an existing customer onto a lower rate where that clearly makes the mortgage more sustainable."
Failure to plan ahead
James Blackler, managing director of Oakstead Finance, said the most serious cases arise when borrowers fail to plan for the end of their fixed-rate deal. He said: "The real horror stories don't involve someone stuck on a standard variable rate, they involve someone who drifted off their deal with no preparation... and ends up on a regulated bridge at 11%-12% with interest rolling up monthly." He advised borrowers to speak to a broker six months before their fixed term ends, not six weeks after it has lapsed.
David Stirling, independent financial adviser at Belfast-based Mint Wealth, said the bigger concern is financially stretched borrowers who could quickly fall into arrears after an unexpected setback. "The frustration is that once arrears arise, some borrowers can struggle to access the competitive rates that would actually reduce their monthly outgoings and help them recover," he said.
Dealing with arrears
Ranald Mitchell, director of Norwich-based Charwin Mortgages, said arrears do not have to mean years of financial uncertainty. "We can use a secured loan to clear the arrears immediately, while preserving the blue-chip first mortgage," he said. "Clear the arrears, keep payments up to date, then the borrower may regain access to a product switch with their existing lender and a competitive high-street rate."
Martin Rayner, financial adviser at Compton Financial Services, urged borrowers to speak to their lender and a broker as soon as possible if they fall behind. "If you are three months behind, speak to your lender and a broker today. Never ignore the problem or be embarrassed to ask for help," he said.
