press release

BELEAGUERED borrowers will need more than the support of Conservative leader David Cameron when cheap two and five year fixed rate deals come to an end in 2008, says personal finance data comparison site Moneynet.co.uk.

With the likes of high profile figure Cameron adding his weight to the call for a calming of the lending and spending boom, there’s no excuse for anyone to stick their head in the sand.

“All good things must come to an end and for the UK’s credit binge, the party is definitely over,” says Moneynet.co.uk chief executive Richard Brown.

“Those homeowners who used a low rate fixed deal to buy property that they could otherwise not afford could be in serious difficulty unless they take careful action to find an affordable alternative.”

Borrowers who struck five-year deals when interest rates dropped to just 3.5 per cent in 2003 could have to find hundreds of pounds extra each month when their deals revert to their lender’s SVR.

Equally worse off will be those who were only able to afford 2006 property prices thanks to a two-year fixed deal when the base rate was 4.5 per cent in August of last year.

With the financial forecast for 2008 looking increasingly stormy, it’s widely acknowledged that the UK’s appetite for borrowing has become a problem and needs to be brought under control.

“That said it is not in the lender’s interest to see their customers face serious difficulty and lose their home so there are always alternatives available,” says Brown.

“As the end of the fixed term approaches lenders will inform their clients of the alternatives available to them but after that, the onus to act is on the borrower – dithering will only bring the day closer when repayments revert to the lender’s SVR.”

However, because nearly all fixed, discounted and tracker products carry up front fees and a tie-in for a set period of time, there’s always a risk of locking into ever- increasing repayments should rates go the wrong way.

“That’s why it’s crucial to compare products online or talk to a mortgage broker or IFA who will be able to tell you if they can beat the deal you’ve been offered,” he adds.

Shopping around for a new lender can bring real savings, even taking into account the fees involved, but for borrowers who can’t switch because of credit problems there are other options.

Extend the mortgage term – for borrowers with repayment mortgages, most lenders will allow an extension of the mortgage term to 35 or even 40 years. For example, an increase from 20 to 40 years on a £100,000 mortgage at 5 per cent will reduce the monthly repayments from £668 to £485.

Whilst it’s far from ideal to have a 40 year mortgage, it is a short term fix which could avert disaster until things improve. However, borrowers should ensure they have the willpower to reverse this money-saving strategy as soon as they can afford to.

Transfer to an interest only mortgage – again, not the best option and something that should be viewed as a short-term solution, but a useful way to buy time until fortunes improve. The difference this can make is quite significant - on the same £100,000 mortgage at 5 per cent, interest only payments reduce to £416, saving £252 per month.

Look for other ways to make savings– if all else fails then a complete financial review could reveal other ways to reduce outgoings. Shopping around for alternative deals on for life insurance, payment protection insurance, buildings and contents insurance could bring the savings that make the difference between staying afloat and going under.

“If you’re still struggling to meet your repayments then it’s important to talk to your lender at the earliest stage,” says Brown.

“Most lenders will do what they can to help provided you keep them informed and pay what you can. However, if your problems are more severe organisations such as Citizens Advice or the Consumer Credit Counselling Service can step in and may be able to liaise with the lender on your behalf.

“The most important message to all borrowers is to face what’s coming – doing nothing and hoping the problem will go away is no longer an option.”

* BBA/BSA data, April 2007