Young homeowners most likely to face mortgage strain, watchdog says

Young homeowners are most likely to be financially stretched as a result of higher mortgage rates, the Financial Conduct Authority (FCA) has said.

An estimated 356,000 mortgage borrowers could face difficulties with repayments by July next year, the regulator said, with those aged 18 to 34 most affected.

That is lower than its previous estimate in September which suggested 570,000 people could have problems.

Competition has returned to the home loan market, lowering fixed rates.

Worries about repayments

The FCA defined mortgage borrowers as being financially stretched if more than 30% of their gross household income was going towards mortgage payments and they were not already behind on payments.

It said that younger homeowners, and those living in London and the South East of England were most likely to find themselves in this situation.

Within this group, those rolling off a fixed-rate deal could end up paying an additional £340 a month on average under a new mortgage deal.

But the picture overall was less critical than previously anticipated, owing to changes in market expectations of the Bank of England base rate - which influences the rates lenders charge.

The previous analysis was based on market expectations in September last year, which saw the Bank rate peaking at around 5.5%, as opposed to a peak of around 4.5% in the February expectations, used to calculate the most recent estimate.

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The FCA said that 200,000 homeowners had already missed payments, as of June last year.

"Our research shows most people are keeping up with mortgage repayments, but some may face difficulties," said Sheldon Mills, executive director of consumers and competition at the FCA.

"If you're struggling to pay your mortgage, or are worried you might, you don't need to manage alone. Your lender has a range of tools available to help.

"Get in touch as soon as you have concerns, don't wait until you're about to miss a payment before doing so. Just talking to them about your options won't affect your credit rating."

Mortgage rates rose throughout last year, making a new fixed-rate deal more expensive than many homeowners have witnessed for at least a decade. Rates surged after the mini-budget, but have settled down since as lenders compete again for borrowers.

Borrowers have also faced financial strain from the rising cost of living, particularly food and energy bills.

Tackling It Together: What happens if I miss payments

Within 15 working days of missing the equivalent to two or more months of repayments, your lender must:

• Tell you how much your arrears add up to

• List the missed payments

• Explain how much is outstanding on the mortgage

• Outline any charges

Your lender must then treat you fairly by considering any requests about changing how you pay, perhaps with lower repayments for a short period.

Any arrangement you come to, the FCA points out, will be reflected on your credit file - affecting your ability to borrow money in the future - as will any missed payments.

Your lender might also suggest or allow you to extend the term of the mortgage or let you pay just the interest for a certain period of time.

Lenders may offer a mortgage holiday which enables you to delay payments, depending on individual circumstances - and not to those already in arrears - but not indefinitely. Again, this will show on your credit file.

• Read more: What happens if I can't afford to pay my mortgage?