Consumer champion Martin Lewis has said that a mortgage ticking time bomb that he previously warned about is now exploding.
The founder of MoneySavingExpert.com told ITV’s Good Morning Britain that he had previously highlighted a “mortgage ticking time bomb”.
He continued: “And I’m afraid that time bomb is now exploding.”
Lewis said people are almost certainly going to have to readjust their finances to cope with higher interest rates.
Lewis’ comments were made as data from Moneyfacts showed the average two-year fixed-rate residential mortgage rate on the market jumped to 6.07% yesterday, up from 6.01% a day earlier.
The average five-year fixed-rate deal is now 5.72%. This is up from an average rate of 5.67% on Monday.
The choice of mortgages has also dropped since Monday, with 4,641 residential products available, down from 4,683 on Monday.
Lewis told Good Morning Britain how he had given his views during a mortgage summit held by chancellor Jeremy Hunt last year.
He commented: “I talked about banks increasing their margins, in other words they’re putting mortgages up and they’re not putting savings up by as much, so they make more money.
“And what we really need is soft or hard political pressure right now to say to them either you make things better for mortgage holders or you make them better for savers, or best, you make them better for both.”
He added: “But we’d got a lot of the banks sitting there and nodding.
“And many of the things I suggested they argued they were already doing, like you could change your term, you could take a payment holiday, you could reduce the amount you pay temporarily, you could switch to interest-only.
“But the big problem for me is they haven’t made that easy.
“And what I was suggesting in that meeting is, first of all those things need to be made reversible, so you know that if you can do it temporarily you can go back without a problem. That isn’t the situation.
“And second, they need to look at minimising the impact on people’s credit scores, because that puts people off taking a form of action, it scares them that they’re going to be disenfranchising themselves from other forms of borrowing for six years, but again, that hasn’t happened.
“So the ultimate result of that mortgage summit was a tiny bit more communication to borrowers.”
Lewis continued: “It’s about giving people flexible tools.
“And this is really important, because ultimately there is very little that we can do to protect people.
“If interest rates are going to be high over three or four years, people are going to have to readjust their finances.
“There is nothing else we can look at, they’re going to have to readjust their finances. And that’s going to be a nightmare.
“I can’t see this government bringing in a mortgage rescue package, even if it wanted to do so.
Lewis believes the mortgage squeeze is going to take it out of many mid and mid to high earners.
He also warns that the impact on mortgages has a big knock-on effect for many renters, who are seeing record proportions of their disposable income going on rents at the moment.
He continued: “We’re heading for trouble. And I think the whole point of what I called for last October and why we had the meeting in December was the idea was you have to come up with the plans and put some of the mitigation measures in place before you get to the crisis.
“Because when you do it, once you’re in crisis, it’s already too late. And we had that meeting and we didn’t do it.”
Reflecting on the recent surge in mortgage borrowing rates, Lewis said that “the idea of them going back to where they were is not looking on the cards”.
“And in fact the current prediction for interest rates is they’re going to continue to rise now, the UK base rate’s at 4.5%, going up to 5.5%, 5.75%,” he continued. “Now the fixed rates you’re seeing now are factoring those rises in, so they may come down a little bit. But if we’re going to have interest rates at 5% in the long run, we’re not going to see fixes come down.
He added: “What I would suggest is anybody who is struggling, speak to a good mortgage broker, that’s their job, to talk you through what’s available.
“If you can’t pay, talk to your lender as soon as possible.”
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