Byline: JO THORNHILL
MIDDLE-CLASS homeowners in affluent areas are the 'walking wounded' of the recession, according to debt counsellors, charities and other groups assisting desperate borrowers unable to manage their debts. A double-whammy of excessive borrowing in the past decade coupled with job losses in higher-paying, professional sectors such as finance is hitting middle-class families especially hard.
Transact, an organisation that promotes financial inclusion, last week reported a surge of applicants visiting drop-in centres in wealthy parts of Surrey and Cheshire. This followed the release of statistics from the Consumer Credit Counselling Service, another debt advice charity, showing that one in ten people seeking advice earned more than [pounds sterling]30,000 a year.
A failure by borrowers to manage their mortgage effectively is at the root of many crises. Leading financial advisers now say that when they see their clients the only thing they want to talk about is their mortgage - rather than savings or investments.
'Mortgages now loom large in families' financial planning,' says Richard Morea of mortgage adviser London & Country in Bath, Somerset. 'Returns earned on spare cash in the bank are low, which is an incentive to clear more expensive mortgage debt. Borrowers are also worried about their incomes. Reducing mortgage debt is a priority like never before as borrowers build a buffer in case they lose their job.'
There are ways in which families can better control or reduce mortgage costs:
GET A BETTER RATE
THE days of shopping around among thousands of keenly priced mortgage deals are gone. Many existing borrowers now do not qualify for a new home loan thanks to the sudden withdrawal of numerous lenders from the market and the fall in house prices.
But longer-standing homeowners with 30 per cent equity or more, especially those on fixed rates coming to an end, should benefit from new, low-rate deals.
Yorkshire Building Society, for example, offers a three-year fixed rate at 4.09 per cent for borrowers with 25 per cent or more equity at a fee of [pounds sterling]245.
MOST lenders allow homeowners to overpay ten per cent of their mortgage a year without being penalised, even where redemption penalties apply. They can do this either through regular monthly overpayments or one-off sums. Overpaying increases your equity in the property instantly and, if you request this from the lender, can also cut monthly mortgage outgoings.
Reducing a [pounds sterling]100,000 repayment mortgage charged at five per cent to [pounds sterling]90,000 would cut monthly repayments the same payments after overpaying, however, you can clear your debt quicker and decrease overall interest costs.
A [pounds sterling]100,000 repayment mortgage at five per cent for 25 years results in a total interest bill of [pounds sterling]75,000. Cutting the mortgage to [pounds sterling]90,000, but maintaining monthly payments at the same level, means the mortgage will be cleared in 20 years with a total interest bill of [pounds sterling]52,500. Nationwide Building Society allows overpayments of up to [pounds sterling]500 a month while HSBC allows overpayments of up to 20 per cent of the monthly repayment on some deals. Bigger overpayments may incur a penalty, typically two to five per cent of the amount paid off.
It may not be possible to get back overpayments on an ordinary mortgage if you need cash in a hurry. …