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Capital’s million pound mortgage crunch

by LLP Finance Reporter
6th Sep 23 11:37 am

New data from Dashly, the mortgage insight platform that monitors over £100 billion of mortgages, shows that homeowners in London with £1m mortgages will see their payments rise, on average, by 38% over the next six months.

Based on a sample of 250 fixed rate mortgages in the capital between £750k and £2.5m (with an average balance of £1,030000 on a £1.78m property) that are due to end between now and the end of February, and assuming borrowers switch to the best available rate instead of lapsing onto their standard variable rate, the average monthly payment will rise by £1572 a month, from £4137 to £5709 — or £18,864 a year, an increase of 38%.

Dashly’s analysis also found that the average interest rate will rise from 1.66% to 5.16%. Ross Boyd, Dashly CEO, commented: “Payments are going up for everyone, but for people with sizeable mortgages, the increase will be particularly steep. Even wealthy London homeowners will feel an increase of over £1500 a month and some may have no choice but to downsize. Expensive properties in the capital were manageable during the era of record low rates, but that era is now over and we may soon start to see the fallout.”

Neezam Romjon, co-founder of Rebus Financial Services, said more people could potentially leave the capital or consider taking in lodgers to stay above water: “I think we are about to see another wave of London homeowners looking to relocate to other regions of the UK. I also suspect we’ll also see more people with £1m+ loans in London looking for lodgers to provide them with another income stream simply to afford the increase in mortgage payments.”

Meanwhile, Riz Malik, director of Southend-on-Sea-based independent mortgage broker, R3 Mortgages, said more Londoners with sizeable mortgages are switching to interest-only to cushion the blow: “In the capital, we’re noticing an increase in requests to convert all or part of the mortgage to interest-only, particularly for larger loans, as desperate homeowners seek to reduce their monthly payments. However, serious challenges emerge when those already on interest-only plans struggle with their payments.”

Malik’s views were shared by Amit Patel, adviser at Welling-based mortgage broker, Trinity Finance: “For those London borrowers who will see their monthly repayments skyrocket by hundreds of pounds, a good option could be to switch to an interest-only mortgage to ride out the storm. However, this repayment type will not be suitable for everyone and will depend on an individual’s circumstances so it’s crucial to speak to an independent mortgage adviser to explore all the options.”

Craig Fish, managing director at London-based mortgage broker Lodestone, said higher net worths are often able to weather financial storms, although landlords with large mortgages may prove the exception: “Those with £1m+ mortgages in the capital do tend to have a fair amount of financial proficiency, alongside their sizeable incomes. These types are more than capable of surviving the storm headed London’s way, so forced sales are unlikely. The same can’t be said about the buy-to-let market, and this is where we may see forced sales as landlords unable to achieve enough rent have to exit the market. This is likely to push property values down on average in the capital, and I fear we haven’t seen the worst of it yet.”

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