Thrifty Loans

Many cheap fixed-rate mortgage deals are soon to come to an end and for millions of homeowners that could mean a leap in mortgage payments of up to 60%. There are fears of a new wave of repossessions.

The Council Mortgage Lenders has grave fears – so much so that it amazingly suggested that some homeowners should sell up and move rather than risk losing their home. Forced sales would deal a further blow to the property market, already showing a slowdown.

There are around 1.4m nearing the end of fixed-rate deals taken out when interest rates were much lower than now, and they will end up on much more expensive interest rates – anywhere between 30% and 60% higher.

Although many could switch to new fixed or discount deals, many will be left with no choice but to go onto costly variable rates. For a £150,000 mortgage at 5% the repayments are £890 a month – this could rise to £1,424 on a variable rate. A short-term option could be an agreement with the lender to cap repayments for a period.

Michael Coogan, director general of the CML, wants the Bank of England to cut the base rates sooner rather than later to ease the impact for homeowners.

“We are facing very difficult times,” said Mr Coogan. “We have a number of uncertainties in the market. We’ve effectively had two seismic events that we’ve still not recovered from - the earthquake of the capital markets closing because of the problems in the US subprime market and the earthquake of the Northern Rock bank run.”

Anyone with a blemish on their credit record could face big problems, such as mortgage arrears or even a repossession. Selling and renting could be their only answer.

The global credit crunch has caused lenders to review their lending criteria, with more buyers being rejected as high risk and being left to the mercy of specialist lenders with very high interest rates.

Mr Coogan also thought the Bank of England was falling behind the US Federal Reserve which has cut interest rates by 0.75 of a percentage point in recent months, with the BoE leaving them unchanged since July