UK mortgage timebomb: government, lenders, financial advisors must form united front

James Green (Investment Director of deVere Group)

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THE government, mortgage lenders, and financial advisors must urgently forge a comprehensive and coordinated approach as millions could face a mortgage and financial crisis.

The call-to-action warning from James Green, Investment Director of deVere Group, one of the world’s largest independent financial advisory, asset management and fintech organisations, comes as research by the National Institute of Economic and Social Research, a leading independent think tank, estimates that the Bank of England’s latest interest rate hike could see 1.2 million UK households run out of savings by the end of the year because of higher mortgage repayments.

James Green says: “The Bank of England’s surprise 50-basis-point hike will hit millions of homeowners as the interest rates on many mortgages are directly linked to the central bank’s base rate.

“This latest research suggests that alarmingly 4% of households nationwide are on track to run out of savings by the end of the year because of higher mortgage repayments.

“To effectively tackle this crisis, a comprehensive and coordinated approach is required from the government, mortgage lenders, and financial advisors. 

“By recognising the urgency of the situation and collaborating closely, these stakeholders can play a pivotal role in alleviating the burden of rising interest rates on middle earners across Britain.”

He continues: “The government must take the lead in addressing the insolvency crisis by implementing targeted measures. 

“Firstly, the government should introduce stricter regulations and safeguards to protect borrowers. Implementing measures to ensure responsible lending practices, can mitigate the risks associated with rising interest rates. 

“It should also encourage collaboration between lenders and borrowers through mediation and support services to renegotiate terms and prevent repossessions wherever possible.

“In addition, it must focus on providing accessible financial education programs to enhance financial literacy among the public. By empowering individuals with the knowledge and skills to make informed financial decisions, the government can go some way in helping prevent them from falling into the trap of unsustainable debt.”

To address the existing crisis, mortgage lenders can work with struggling borrowers to find viable solutions. This may involve restructuring loans or extending repayment periods to provide temporary relief during challenging times. 

Lenders should also now “prioritise transparency in their communication” and provide “clear information regarding interest rate changes and their impact on borrowers’ repayments.”

Meanwhile, financial advisors can support borrowers by conducting thorough financial assessments, identifying potential risks, and recommending appropriate strategies to mitigate these risks. 

They can provide personalised advice on debt management, refinancing options, and budgeting techniques to help borrowers navigate through challenging financial circumstances.”

It was reported that Rachel Wolf, a founding partner of Public First who co-authored the 2019 Conservative manifesto, said: “The consequence of ever-rising house prices, particularly for squeezed millennials and those in the ever more expensive south-east, will be devastatingly clear in the next year. With the end of low interest rates, the parts of middle Britain that aren’t yet retired will suffer in a way that for them will dwarf the energy bill crisis.”

James Green concludes: “Only through a united front can we successfully tackle the mortgage timebomb and protect households from the devastating consequences of insolvency.”

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