What would you do if your outgoings shot up by £1,688 a month? That’s the question facing Tom and Yazmin Harvey, who are among a growing number of Londoners worried about covering the spiralling cost of their mortgage.
“We were paying £428 a month but our fixed rate finished last year and we moved onto a variable,” says Tom, 36. “It went up to £1,500, then the next month it was £1,800. Now we’re paying £2,116 per month. We feel totally stuck.”
They’re far from alone. Across the capital, prospective buyers and remortgaging homeowners are finding themselves slapped with mind-boggling lender rates and deals being withdrawn at the eleventh hour.
In the last couple of weeks, UK banks and building societies have pulled almost 800 residential and buy-to-let mortgage deals, amid fears over rising interest rates and with lenders reacting to worse-than-expected inflation figures. Others are hiking rates to over 5%, prompting the boss of Barclays to warn householders that they should prepare for a “huge income shock”.
And while such chopping and changing generally occurs during the working week, the country’s third biggest lender Santander took the unusual step of increasing rates over the weekend, while TSB withdrew its ten-year fixed rate deals last Friday with just over two hours notice.
For Tom and Yazmin, who work in marketing, the increases weren’t sustainable and they put their one-bed flat in Bethnal Green, which they bought in October 2015, on the market last December.
“It’s in the perfect location - right by Columbia Road and Victoria Park,” says Yazmin, 35, who also runs interiors business Seasalter Home. “We’ve made it really gorgeous and spent a lot of time and money getting a share of the freehold. It should be really desirable. Yet, despite having loads of viewings and dropping the price by £25,000, we’ve not had a single offer.”
“It’s perfect for a first-time buyer,” adds Tom, “but they seem happy to sit tight and wait for rates to drop, especially if they’re living with family. I also think that because they’re having to pay more, they’re being pickier. We’ve got an ex-local authority building across the road and people have been saying that they don’t like that, or complaining that there are bikes in the communal hallway. I mean, this is London. There’s a misalignment when it comes to buyers seeing what they can actually get for what they’re having to pay. It means we’re trapped having to fork out over £2,000 each month and unable to move forward with our lives.”
The couple are faced with the prospect of renting it out, but given that the going rate for a flat in their area is lower than their monthly repayment, even that will be at a loss.
And while they’re able to list it on Airbnb, a 90-day cap on holiday rentals in London - “designed to stop rich investors taking advantage, but preventing normal people like us from trying to pay the bills,” says Tom - means it’s not a long-term solution. “Basically we’re stuck in a catch 22, with the only option being to grin and bear it.”
While the mortgage brokers I speak to reassure me that rates will come down again ‘at some point’, the situation remains turbulent. Even as I was writing this article, Barclays emailed to say that some of its products were increasing (including a rise in its two-year fixed 4.62% rate to 5.47%), followed swiftly by emails announcing rises from Virgin Money, TSB and NatWest.
Laxmi Hussain, 39, has been on the sharp end of those rate increases. The artist co-owns a flat in South Kilburn with her 35-year-old sister, which they inherited from family with £220,000 left to pay off. For the past five years, they’ve been paying £1,078 a month on a fixed-rate mortgage.
“It’s coming up for renewal in October and they contact you six months in advance to to about a new deal. But, like many people at the moment, we wanted to wait it out a bit and see what might happen and whether rates would go down,” she says. “We read lots about it and were under the impression that things might settle down - but then, of course, we’ve just had two interest rate increases, so now we’re like ‘ok, let’s just fix it for two years and not wait any longer’.”
The sisters’ lender, Halifax, could only offer them a rate that saw the monthly repayments go up to £1,300 if they kept their current 16 year term.
“While we’re lucky to have such a low mortgage for London, that is a big difference, especially when all our bills have gone up,” says Laxmi. “My sister is worried that it will eat through any savings she has. So our only option, if we want to keep paying the same amount, is to bump the term back up to a 24-year term and basically go back to square one. It feels like starting your mortgage all over again.
“We’re stuck. We can’t move lenders because after all the new product fees and potentially higher rates, we wouldn’t be any better off. It’s just horrendous. My sister wants to think about settling down and having a family, but we have no idea what will happen in two years’ time.”
“I thought the rate of withdrawals had slowed down, but they just keep popping up,” says Aaron Strutt of London mortgage broker Trinity Financial. “The constant changes really aren’t helping borrowers especially during a cost of living crisis. If you’ve got your eye on a certain deal, you just don’t know if it’s going to be there in a few days’ or not. People are worried.”
He cites the example of a building society which, last week, emailed at 5pm that it was putting rates up by more than 0.6% by 10pm the same night. “So you’ve only got a few hours to submit your application,” says Strutt. “We’re hearing about brokers sitting there at 9pm ready to make sure they can get their clients on the phone and get the paperwork done.”
But with Londoners leading busy lives, there’s no guarantee they can drop everything to meet sudden deadlines. That’s something Lewis* knows only too well. The 42-year-old was one of thousands of buyers whose mortgage rate was pulled last week, leaving the purchase of his £470,000 three-bed family home in Greenwich hanging in the balance.
“We’ve been renting for a long time and looking to buy a home where our two children, aged five and two, can grow up,” he says. “Our broker recommended a five-year fixed mortgage with Accord, which is part of the Yorkshire Building Society, at 4.62% - which, at that point, felt like quite a good deal.
“I was conscious that we’d already seen a mild panic in the financial markets, so we were scrabbling to get the documentation together to submit our application - but getting hold of our payslips was taking time and my wife had to request hers from work. Then I had to rush out of the door to pick up the children, so I told our broker that I wouldn’t be able to get everything over until the next morning. He said that lenders normally give notice if they’re going to pull products and he hadn’t heard anything, so more than likely it would be fine.
“I had it all over to him by 10am and he phoned me half an hour later to tell me that the lender had pulled our deal. The next best five-year fixed with them was now 5.34%, which is a massive jump. We’re paying nearly £2000 pounds a month in child care and have credit card debt, so I was worried that another lender might not take us on and we’d be left having had an offer accepted but not being able to go ahead.
“We went from excitement to being victims of this mortgage maelstrom. It’s crushing. You’re constantly trying to second guess just how quickly rates are going to go up and how much of a window you’ve got. It’s mentally exhausting. We’ve all got lives to live and it’s not something you anticipate having to deal with - a seismic shift in the space of just a matter of hours.”
We went from excitement to being victims of this mortgage maelstrom. It’s crushing.
Or as Craig Fish, managing director at London-based mortgage broker Lodestone puts it: "The carnage continues and is getting ridiculous… do the lenders think that the future is this uncertain?”
Aaron Strutt recommends that buyers keep their options open. “Shopping around obviously sounds incredibly boring, but the difference between the lenders at the minute is pretty huge,” he says. “It’s worth seeing whether you qualify for one of the cheaper deals rather than just taking the rate hike. There are still some pretty decent mortgage rates available and some of the bigger banks are topping the best buy tables - but then we could wake up tomorrow and they’ve put their rates up.”
That’s what Lewis and his family were able to do, securing a deal with NatWest at 4.7% and getting their application through before any whiff of it being taken off the table.
For Tom and Yazmin, however, the only option currently available to them has been to borrow against Tom’s marketing business.
“I’ve got the luxury that, for the time being, I can pay myself a bit more. But that is unsustainable - it can’t happen long term because it could be detrimental to the business,” he says. “If all else fails, we might have to move out and go back to living with parents or friends. But we hope that’s a last resort. We know how lucky we are to be on the property ladder at all, but we did flat shares and lived at home for years to save up for this flat and to emulate what we’ve seen our parent’s generation do with property. Now we’re in this hole that we can’t seem to dig ourselves out of. It feels like we’re trapped.”
