In light of the US subprime mortgage market crash of 2008/9, UK base rates fell to historic lows before beginning a relatively steep upturn and (hopefully) peaking at 5.25%. Consequently, the last 15 years have seen rates that do not reflect historical averages.
To put this into perspective, between 1971 and 2023, UK base rates averaged 7.12%. This means that the recent rise in UK interest rates is set to have a significant impact on mortgage payments in the short, medium and longer term – especially those coming to the end of their relatively low fixed rate deals.
Unfortunately, this has prompted an increase in mental health issues, with many households struggling with the cost of living crisis and an increase in mortgage rates.
Understanding Mortgage Pressures
Historically, the average UK mortgage was around 25 years in duration, with 2 to 3 years on a fixed rate. Due to the cost of living crisis (and affordability issues), the average duration is now moving more towards 30 years. There are also signs that homebuyers are more focused on five-year fixed rates. This will provide a degree of financial visibility, even if mortgage trends change and it turns out to be the wrong move.
As a consequence of the increase in base rates from 0.1% to the current rate, many homeowners are facing a significant increase in mortgage costs. Data released by the Office For National Statistics shows an estimated 1.6 million fixed-rate mortgages in the UK due for renewal in 2024.
To put this into perspective, the recent bout of double-digit inflation continues to impact the cost of living, and those looking to remortgage on a fixed rate today could face monthly payments 2 to 3 times higher than their previous mortgage arrangement!
High housing costs and economic instability, not only in the UK but globally, have seen a huge increase in mental health issues. While there is help and guidance out there, it is important to recognise any financial challenges on the horizon and try to take control. Many instances of mental health issues are magnified by a perceived loss of control, which can make many of us feel helpless.
The Link Between Mortgage Pressures and Mental Health Issues
A 2023 report by financial software firm Dye & Durham laid bare the challenges facing UK homeowners. The survey took in 2000 UK adults, and unfortunately, the results reflected growing concerns:-
- 56% of UK mortgage holders said the cost of living crisis was affecting their mental health
- 69% of those questioned admitted they were worried about their financial future
- 30% of mortgage holders were concerned they would miss payments in the next 12 months
- 36% admitted an unexpected shock, such as unemployment, would leave them struggling to pay mortgage payments beyond two months
- 43% of those who responded admitted selling personal items to manage their finances
- 55% have gone without food, new clothing and shoes, so their family and children are not impacted
- 25% of those who took part in the survey admitted using savings to cover day-to-day living expenses
- 66% were concerned that their children would struggle to get onto the property ladder
Mental Health Issues Associated With Financial Pressure
Although the survey results may be concerning, and it’s important to acknowledge that financial pressure can have a significant impact on our mental health, it’s also completely normal to feel stressed or anxious when dealing with uncertainty. One often overlooked method is to fully accept how you feel and not judge yourself for it. Then, you can move to a more positive place from a position of full acceptance.
It’s crucial to remember that taking care of our mental health is just as important as taking care of our physical health. By seeking support and finding healthy coping mechanisms, we can reduce the negative effects of financial stress on our mental well-being.
It’s also important to recognise that these mental health issues can have a ripple effect on other aspects of our health, such as our sleep, heart health, and digestion. However, with the right support and self-care practices, we can mitigate these risks and improve our overall health and well-being.
Remember, it’s okay to share your struggles with loved ones and seek help from professionals. Taking proactive steps towards managing financial challenges can help us regain a sense of control and reduce the impact on our mental and physical health.
Addressing Mortgage Pressures
The first thing to do when you see potential financial problems on the horizon is to look at your household spending, income and any foreseeable changes in the short term.
While it may sound cliché, the first step to addressing and ultimately controlling financial pressure in your life is to admit it is happening. Depending on your situation, there may be some challenging decisions to be made, but there is power in being proactive.
If you are unable to make your mortgage payments, there are still several financial options. Start by checking if you have payment protection with your mortgage or approach your lender for a possible payment holiday or other short-term assistance.
The more advanced warning you give yourself, the greater the chances of avoiding missed payments and adverse credit. Other practical steps, while they’re far from ideal, are far more impactful the earlier you commit. Things like taking on extra part-time work, or considering selling, downsizing or looking for alternative forms of homebuying like shared ownership (part rent/part buy) mortgages.
Removing the stigma of mental health
It is fair to say that until recently, many people preferred to keep their mental health issues to themselves, often not even telling family or close friends. While more people are now willing to discuss mental health and seek assistance, it is important to do this sooner rather than later. Burying your head in the sand may give you relief in the short term, but it could make a potentially fixable problem many times worse.
The reality is that the majority of us will experience some kind of mental health challenges in our lifetime, and recognition of these issues should not be seen as a weakness.
Unfortunately, many people are facing potentially significant increases in their mortgage payments due to recent interest rate rises. The Office for National Statistics recently confirmed there are 1.6 million fixed-rate mortgages coming to an end in 2024.
Summary
It’s understandable that interest rate rises since 2021 have left many feeling worried about potential increases to their mortgage payments. However, it’s important to remember that there are proactive steps you can take to manage your finances and stay in control of your financial future.
You might consider speaking to your adviser, who can offer guidance and support as you explore your options, whether that means switching to a standard variable rate or locking in another fixed-rate term.
It’s also essential to prioritise your mental health during this time, and there’s no shame in seeking support from a mental health counsellor if you need it. Don’t forget that you have a network of family and friends who care about you and want to help. Opening up to them about your situation or encouraging others to do the same can help them better understand the challenges you’re facing, and they may be able to offer emotional support as you navigate this difficult time. If you are struggling or require additional advice and guidance, please feel free to call us anytime.