How to break free of mortgage debt

More homeowners are turning to credit cards to pay off their mortgage or rent – potentially leading to even greater debt-related problems. Meanwhile, there are reports that lenders are turning down increasing numbers of mortgage applicants. It seems like a bleak time for householders and buyers alike. But there are ways round the problem…

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There is an old cliché to the effect that ‘no news is good news’. Last week’s stories concerning the UK mortgage market suggested the cliché might just be true.

First up was a press release from housing campaign group Shelter, revealing that more than a million householders have used credit cards to pay their mortgage or rent in the last 12 months.

After a succession of base rate hikes, the credit crunch and rising housing costs, mortgage rates have simply reached unaffordable levels for a large number of homeowners.

In particular, young people with few savings have been hit hard – almost 7.5% of people aged 18 to 24 have used a credit card to make a mortgage or rent payment in the last 12 months.

Indeed mortgages have been harder to come by in recent times, with statistics from the Council of Mortgage Lenders, the industry trade body, showing a 12% drop in lending last month – more than double the usual fall at this time of year.

The basic problem for mortgage borrowers is that of finding a deal at the right price, with many now wondering whether that is at all possible. The irony is that it is – as long as you are willing to shop around.

For current homeowners there are a host of attractive re-mortgage deals to choose from – and fixed rate deals can help you secure your finances for the foreseeable future.

Two of the leading fixed rate re-mortgage deals currently available are listed below:

  • Alliance & Leicester - A 5.48% initial rate until September 2009 (reverts to 7.89% thereafter) with a £1,999 fee. This is aimed more at borrowers with large loans, as the high application fee makes this unsuitable for those with small mortgages.

  • Britannia Building Society - A five-year fixed rate product for long-term security at 5.39% (7.45% thereafter) with a reasonable £999 product fee.

More good news for homeowners is that predictions of further rate rises before the end of the year have died down in recent weeks, with many industry analysts now believing the base rate will fall.

That could mean that a tracker mortgage offers a more cost-effective deal – though you should be aware that if rates do rise, so will your mortgage payments.

Nevertheless there are a number of good tracker deals on the market including one from HSBC Bank, which offers 5.99%, with a fixed £599 fee.

First-time buyers should feel encouraged too as there are many excellent deals for them to choose from, including a 4.99% rate from Yorkshire Building Society until February 2010 (although a higher lending charge is included and a 0.5% fee is payable).

Britannia Building Society also has a competitive deal for first-time buyers, with a fixed rate offer at 5.69% for three years with a low £499 fee, though a higher lending charge applies.

My message to homeowners and buyers alike is to not take risks by potentially placing yourself into a maze of debt to meet high mortgage repayments.

Instead shop around and get yourself on a more affordable deal. Even if you have adverse credit you should be able to find products that are tailored for your needs.

Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.

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