A couple of readers have asked about mortgage fixes when they have a poor credit record or simply a lot of other debt:
Ms A: We are in a DMP and we were told it would make it very hard to remortgage. So we are now on Santander’s SVR and it’s over 7%. Can we really just ask them for a new fix and they won’t say no?
Mr B: I’m worried about talking to Nationwide when our current mortgage fix ends. We have a lot of credit card debt from my wife’s maternity leave and now childcare costs.
I can’t say this will never be a problem.
But for the large majority of people who already have a mortgage, getting a new fixed rate will not be a problem unless they have mortgage arrears.
If you don’t get a new fix or another new product such as a tracker, you will be paying your lender’s SVR. In October 2023, the average SVR is over 8% and some lenders are charging over 9%…
No arrears? – most lenders don’t check affordability for a new fix
The Mortgage Charter
In December 2022 there was a meeting between the Treasury and mortgage lenders. The Treasury says:
At the meeting, lenders committed to help all their customers by enabling customers who are up to date with payments to switch to a new competitive, mortgage deal without another affordability test.
This isn’t just a few lenders. The Treasury says it applies to 97% of the mortgage market, where customers don’t have arrears and not seeking to borrow more or change their repayment type or term.
The Mortgage Charter, launched in June 2023, has repeated this promise and added further commitments as well. If you don’t have arrears, you will be able to:
- switch to paying interest-only for six months; or
- extend your mortgage their mortgage term to reduce your payments (with the option to revert back to the original term within 6 months if you want).
The Mortgage Charter has now (October 2023) been signed by 48 lenders – they are listed at the bottom of that page so you can easily check if your mortgage is with one of them.
Why don’t they check affordability?
When you apply for a mortgage, the lender is taking a long-term risk on you – 25 or more years. So they make detailed checks.
But when your fixed rate ends, your mortgage doesn’t end. the mortgage continues for the rest of the term at your lender’s Standard Variable Rate(SVR) instead. (some lenders have a slightly different name for their variable rate but SVR is the most common.)
A lender can’t decide they don’t want to lend to you anymore when your fixed rate has ended. They can’t ask you to repay it, or make you sell the house unless you have mortgage arrears. The only question is what interest rate they will charge.
And lenders have to treat their customers fairly. If you are paying £550 a month now, which would be £800 on a new fix, it makes no sense to say that £900 isn’t affordable so you will have to pay £1050 on the lender’s higher SVR.
Some mortgage lenders websites are vague
Some lenders have clear websites – here is the Leeds Building Society – but many don’t.
I don’t know why lender websites aren’t all clear. If you are in financial difficulty at the moment because of the cost of living and this will be a lot harder when your fix ends, then mortgage lenders will want you to talk to them about your options. But I think being vague puts people off talking, rather than encouraging it.
Take the two questions from readers at the start of the article:
- despite her DMP, Ms A can probably immediately move to a new fix with Santander that will cheaper than the SVR she is currently having difficulty paying.
- Mr B needs to know that he should still be able to get a new fix with Nationwide.
“I’m worried this won’t apply to me”
Here is one case where someone who thought he may be rejected has got a new fix:
I’m with Halifax and my fixed term finishes on 30th Sept. Had very little, or possibly no credit card debt when I took this out and it’s now ball park 11k, plus frequently overdrawn.
I tried to fix for longer when interest rates started to spiral last year c. 2%. I was told then that the Early Repayment Charge going on to the mortgage meant I needed to undergo affordability checks which I failed due to the credit card debt (was around 3k at this time).
Naturally I was pretty concerned that my credit card levels being so much higher was going to make it almost impossible for me. Halifax have approved a product transfer for me, fairly automatically (no credit check etc).
Who will have problems?
Problems getting a new fix
The people who will have problems getting a new fix are:
- mortgage prisoners, where their current lender doesn’t offer new mortgages. MSE has a good round-up of the options mortgage prisoners have.
- people with arrears. If you are already in arrears then a new fix at a higher rate is unlikely to solve your problems. See Worried about the cost of your mortgage? Find out the help your lender can offer for details. A new fix may be a part of the help you need but you may need other help.
- where you want to change some details about your mortgage – the amount, the term, the named borrowers etc. These are a new mortgage, not a simple new fix on the same mortage. Here the lender will usually do an affordability check although sometimes it isn’t necessary, for example if you want to extend the term but it will still finish before your retirement date.
- people who have an interest-only mortgage that is ending. You cannot get a simple new fix, you need a new mortgage and that will involve affordability checks.
Hard to choose a new mortgage product
It can be hard to choose a new mortgage product at the moment because no-one knows what rates are going to do in future. I have been talking about “fixes” here as fixed rates used to be much the most common option, but a fix may not be right for you at the moment.
Two year fixes are currently more expensive than 5 year fixes as the market thinks that interest rates may well fall. Would a tracker mortgage be a better choice as there usually aren’t any exit fees from them, so if rates fall you could later fix? How do you balance a fee for a mortgage and a lower rate against a fee-free, higher interest rate?
When you are buying a house or changing lender a broker can help you through the confusing options. If you know you will have to stay with your current lender because no other lender is likely to give you a mortgage, you can talk to your lender about their various options.
Problems paying the higher amount
There are likely to be hundreds of thousands of people who can get a new fix but who will find it difficult manage the higher repayments. They are paying less than their lender’s SVR but it may still be several hundred pounds a month more than their previous mortgage payments had been
One person who has just got a new fix from NatWest said:
We’re not in panic mode yet, but I don’t feel safe, It’s like a ticking time bomb, which month will it all blow up?
If this is you, then the sooner you talk to a debt adviser the better. You can do this before your current fix ends now that you know a poor credit record won’t stop you getting a new fix.
Or you can do it when you have got a new fix, to reduce your other costs so you can afford the higher mortgage.
If you aren’t sure, talk to StepChange about your options so you know what they are.
Have you had a problem getting a new fix?
If this article has made it sound like should have been given a new fixed rate but your lender has said No, leave a comment below.