How are people actually coping with mortgage payments increasing?

dander

silvercar said:

We’ve been on interest only from the very start, albeit now with an offset mortgage. If you are disciplined it can work for you. Effectively you are reducing the minimum payments that you have to make, so it helps through the tough times. In areas with high property prices it can be cheaper to have an IO mortgage than renting.

It's that discipline though - for people like you who have done it consciously from the start and are properly planning for the repayment at the end, it's fine. It's the people doing it now because they are struggling to pay on their repayment mortgage that I worry for. It's so easy to say "we'll just do this until I get a payrise/rates reduce" or whatever and years can fly away without the solution showing up. 

[Deleted User]

The bottom line is - prioritise, prioritise, prioritise.
Cut out the luxuries and that can free up a lot of money in a lot of cases.

Discipline - just say 'no' to yourself when you're hankering after the new 'thing' you quite fancy.
Once you get into the mindset it's actually easy to do but breaking the habit of going out and buying/doing whatever you fancy is the hard bit.
Giving in to your kids that keep on, and on, about the things they want ......that takes strength !
Once you have the conversation about the having the new toy this week or a nicer christmas/birthday/nice food .... it gets easier --  again, it's the whole family prioritising.

However, as mentioned before, when you're on a low income it's harder because there, often, aren't many things you can cut back on, but, there will be things - it's just about the mindset.

K_S

dander said:

I hate the thought of people going on to interest only. It feels like such a gamble to reduce payments and stop paying off the debt. At least with extending the term people are still gradually paying the debt off. It scares me that people might be so focussed on cost they aren't thinking about securing their homes.

@dander I see your point and you're absolutely right that it's not for everyone. But there are a lot of people for whom I/O makes sense, both financially and from the point of view of building resilience.

Plus, it's not like pre-GFC times anymore when I/O lending was quite liberal. With the vast majority of lenders you'll get an I/O mortgage only if you can demonstrate affordability on a capital repayment basis and you'll need to take heavily regulated advice to make sure it's right for you and not a desperate measure to cut outgoings without an adequate repayment vehicle.

I've been on I/O for a long time now and have no plans to change that. As a self employed person, the flexibility it affords (while still allowing me to make overpayments) helps me sleep better at night and use my money efficiently (paying into a pension for example). Over time I've brought the LTV down significantly, have a repayment vehicle and overpay when appropriate to bring down the cost. I also see financially savvy high-income clients who use I/O in a lot of different ways to improve their financial situation overall.

In today's regulatory and residential lending environment, there are a lot of safeguards to guard against borrowers taking out I/O mortgages simply because they can't afford their mortgage payments.

RelievedSheff

We are in the fortunate position that our mortgage is fixed until May 2026 so we have some comfort that our repayments are fixed through these troubled economic times. Hopefully by 2026 things might have settled down a little and the economic picture might be a little clearer. 

We are planning for our repayments to increase when we do get around to remortgage time but with a relatively small mortgage balance and a short term (10 years remaining) then the rise in interest rates won't really affect our repayments too much.

wheldcj

The longer term economic position is bleak though when you see the responses here.

Those who can will sensibly cut back but that will ultimately hit all parts of our economy.  Car industry, hospitality,  holiday and some retail industries will all feel the pinch.  That will in turn hit so many ancillary industries.  As a capitalist society we cannot expect to see discretionary spending reduce without hugely negative effects.

Those who cannot cut back any further will rely on loans to pay loans or
face real hardship.

simon_or

wheldcj said:

The longer term economic position is bleak though when you see the responses here.

Those who can will sensibly cut back but that will ultimately hit all parts of our economy.  Car industry, hospitality,  holiday and some retail industries will all feel the pinch.  That will in turn hit so many ancillary industries.  As a capitalist society we cannot expect to see discretionary spending reduce without hugely negative effects.

That's a good point. As an economy with a large dependency on domestic consumption, more and more cash being diverted to making mortgage payments (both directly for owner occupier mortgages and indirectly through the rental sector) will no doubt impact the overall economy noticeably.

simon_or

silvercar said:

dander said:

I hate the thought of people going on to interest only. It feels like such a gamble to reduce payments and stop paying off the debt. At least with extending the term people are still gradually paying the debt off. It scares me that people might be so focussed on cost they aren't thinking about securing their homes.

We’ve been on interest only from the very start, albeit now with an offset mortgage. If you are disciplined it can work for you. Effectively you are reducing the minimum payments that you have to make, so it helps through the tough times. In areas with high property prices it can be cheaper to have an IO mortgage than renting.

Same here, I've moved to interest only as soon as I could and it works well for us.

I don't know how it was earlier but at least since I first went interest only in 2016-17, you only get an interest-only mortgage if you can convince the bank that you don't need one!

housebuyer143

simon_or said:

silvercar said:

dander said:

I hate the thought of people going on to interest only. It feels like such a gamble to reduce payments and stop paying off the debt. At least with extending the term people are still gradually paying the debt off. It scares me that people might be so focussed on cost they aren't thinking about securing their homes.

We’ve been on interest only from the very start, albeit now with an offset mortgage. If you are disciplined it can work for you. Effectively you are reducing the minimum payments that you have to make, so it helps through the tough times. In areas with high property prices it can be cheaper to have an IO mortgage than renting.

Same here, I've moved to interest only as soon as I could and it works well for us.

I don't know how it was earlier but at least since I first went interest only in 2016-17, you only get an interest-only mortgage if you can convince the bank that you don't need one!

The rich get richer mentality. I am a keen supporter of interest only also. 

lisyloo

wheldcj said:

The longer term economic position is bleak though when you see the responses here.

Those who can will sensibly cut back but that will ultimately hit all parts of our economy.  Car industry, hospitality,  holiday and some retail industries will all feel the pinch.  That will in turn hit so many ancillary industries.  As a capitalist society we cannot expect to see discretionary spending reduce without hugely negative effects.

Those who cannot cut back any further will rely on loans to pay loans or
face real hardship.

Absolutely - what wheldcj said.

During the pandemic people switched their habits but still spent at amazon, takeaways etc.
If we have large scale cutbacks across the board then it will have a widespread effect.
At the top end that might be hot tubs, SUVs and cruises, but there's a massive effect on restaurants, takeaways, fish & chips, pubs, amazon, clothing, electrical goods etc.

dander

K_S said:

In today's regulatory and residential lending environment, there are a lot of safeguards to guard against borrowers taking out I/O mortgages simply because they can't afford their mortgage payments.

That's good to know. I've seen so many people saying "We're in trouble, we can't afford these higher interest rates." with people responding "switch to I/O" that I've been worried for people. It's good to know that they will be guided to more suitable solutions once they talk to the professionals.