10&15.ai 29/5/08 12:21:25
Payment
Shock!
Payment shock is generally publicly present that they will be able to switch offsetting these against your mortgage.
perceived as one of those buzz words that get lenders. This means the borrower will be Offsetting can reduce monthly payments
banded about every now and again forced to move to a far more expensive deal and potentially help lessen the effects of
to describe a situation that happens to at the end of the term with their existing payment shock, depending on the level of
somebody else. The truth is, payment shock lender, where the “payment shock” could be savings you have.
is a very real problem, so what exactly is up to 3%.
payment shock and what can you do to help Of course this only one of many solutions,
lessen its effects? Some people will be able to absorb the and ultimately your individual financial
difference, but clearly others will not be able situation will need to be taken fully into
As I’m sure you all understand, when you to accommodate the increased payments, account to provide the most appropriate
take out a fixed rate mortgage on your whether it is because of a change of solution to lessening the effects of payment
property you get a preferential rate that falls circumstances, lack of income or just the shock when you come to remortgage.
well below the lenders standard variable rate simple fact that they were at the limits of
over a set period of time. Once this set time their affordability five years ago. Daniel Di Paola is an adviser with Thinc
period ends you automatically revert to the Group Limited, which is authorised and
standard variable rate, unless of course you Payment shock is certainly expected to have regulated by the Financial Services Authority,
remortgage at this point. an impact in 2008 with the Council of and can be contacted on 0207 621 2400,
Mortgage Lenders predicting that possessions 5th & 6th Floor, 47 Mark Lane, London,
For example let’s say that five years ago you will rise to 45,000 in 2008. That’s 15,000 EC3R 7QQ.
took out a 5 year fixed rate mortgage at more than what was predicted for 2007. So
approximately 3.75%, you would now be what can you do help lessen the potential Not all buy to let mortgages are regulated by
due a remortgage. A competitive 5 year fixed effects of payment shock? the Financial Services Authority. Your home
rate now would be set at approximately may be repossessed if you do not keep up
5.60%, that’s a difference of 1.85%. This is Well, the first thing of course is to get good repayments on your mortgage. There may
where payment shock comes in, you have quality mortgage advice, try not to limit be a fee for mortgage advice. The precise
been living on a budget to accommodate yourself to a particular lender. For example, amount will depend on your circumstances,
3.75% mortgage payments and suddenly if you had your mortgage through your though the maximum fee will not exceed the
almost overnight those payments have now bank, don’t necessarily just return to the greater of £750 or 1% of the loan amount.
increased to 5.60%. same bank as it can only offer you advice on
its own products. This essentially means you
Due to the credit crunch many lenders have may not be getting the best deal available to
stopped offering mortgages to adverse you. Instead speak to a specialist mortgage
clients. Those adverse clients with existing adviser who can search all lenders across the
mortgages are likely to suffer the largest whole of the market for the most suitable
payment shock .Many lenders have reduced product to meet your financial situation.
the maximum amount that clients can
borrow, so chances are if they have an Secondly, be open minded about the type of
adverse mortgage with a loan to value greater mortgage products available to you. For
than 75%, then it is unlikely at example if you have savings consider www.thinc.com
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