Mortgage warning as homeowners ‘vulnerable’ due to rising rates

BBC Money Box on overpaying mortgage or pensions

One in three homeowners are opting for “marathon mortgages” as interest rates continue to exceed five percent, according to new research.

Data from Experian highlights that one in three homeowners under 29 are opting to pay back their mortgage in 35 years or more.

This is being done in an attempt to lower mortgage repayments in the interim period but will likely have unintended consequences down the line.

Research from the Homeowners Alliance suggests that a sizable 33 percent of mortgage holders aged 18 to 34 are unaware of the interest rates attached to their mortgages.

During the cost of living crisis, base rates across both sides of the Atlantic have been hiked to mitigate the impact of rising inflation by both the Federal Reserve and Bank of England.

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As such, the base rates in both the UK and the US are above five percent in each country, respectively.

Based on data from lender Freddie Mac, the average rate on a 30-year home loan in the US is now hovering at 6.7 percent, a rise of 2.9 percent from two years prior.

In the UK, Rightmove reported in August that the average monthly mortgage payment on a typical first-time buyer-type property has reached £1,253 a month; a rise of £300 in a year.

Experts are sounding the alarm that young homeowners may not be able to make informed decisions regarding their financial decisions if they are unaware of the interest attached to mortgages.

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Some 55 percent of adults have admitted to lacking knowledge about different mortgage types.

On top of this, 64 percent have described their familiarity with mortgage terminology as “not good”.

Analysts from Eligible, an AI platform which assists banks in assisting financially vulnerable people, are warning that the impact of mortgage holders lacking information on interest rates could be damaging to their finances.

For example, homeowners could be burdened with mortgage repayments until retirement or fail to progress through the property ladder.

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Rameez Zafar, co-founder of Eligible, explained: “The fundamental problem is that mortgages are a financial product that customers take out only once every three to five years.

“This means that they aren’t regularly engaging with their mortgage and aren’t in the loop of what all their options are.

“In a broader sense, rising interest rates, coupled with increased energy and living costs, heighten vulnerability to default.

“However, the key factor that pushes someone from financial strain to actual default is their lack of awareness about the array of options that their bank could have offered to temporarily ease their financial burden, particularly on their largest financial obligation – their mortgage.”

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