Member Article

Mortgage expert warns of the financial disaster that awaits home buyers tempted to join the Don’t Pay campaign on energy bills

A mortgage expert is warning that defaulting on energy payments will have a wide-reaching detrimental effect on people’s chances of buying a home or remortgaging, if the current situation with interest rates and mortgage affordability wasn’t enough.

The most important thing you can do as consumers is, keep as many mortgage options open to you as possible!

Major energy price hikes have led to the rise of an organised “Don’t Pay” movement with the highly vocal backing of celebrities such as Russell Brand.

But Dean Birks, Managing Director of Signature Funding Solutions, is urging people to be cautious and to be careful not to take action that could have long-term financial consequences. Never, more than ever do you need to have as much lender and product availability, to be able to choose from and secure the most appropriate mortgage for your circumstances.

“ It’s clear that people will be hit hard this winter and, even after recent government action, domestic bills are going to rise by around £1,000 a year,“ said Dean, “but a refusal to pay will undoubtedly cause problems further down the line.

Dean, whose company is based at Festival Park, believes not enough is being done to inform people of the potential consequences of joining the “don’t pay” energy bills movement.

To compound matters, data from Moneyfacts showed average fixed rates a year ago, in October 2021, were 2.25% for a two-year fixed rate and 2.55% for a five-year fixed rate. But by 6 October 2022 the interest rates had increased to 6.11% for a two-year deal and 6.02% for a five-year deal.

Dean said: “I know of no lender who will not penalise you if you are seen to have arrears on your energy bills and this means you could be asked to pay a rate, based on the best I can find in a search of lenders, of over 8%, depending on individual circumstances and the severity of those arrears.

“Unless you genuinely cannot pay anything you must try to protect your credit file. Actively participating in joining the “Don’t Pay” movement will harm your credit ratings for years to come.”

If you’re unable to remortgage you will have to remain on a lenders Standard Variable Rate. As of early October, the typical standard variable rate was 5.40%, up from 4.44% in two years.

And Dean warned: “Borrowers on SVRs are not shielded in any way from further interest rate rises. We should consider that rate rises are a new phenomenon to younger adults as they have lived in a period of remarkable financial stability and, with that in mind, I believe mortgage professionals have a duty to give out information such as this.”

Consultancy Capital Economics say the monthly cost of buying the average house, with a 20% deposit has, in recent times, been around 40% of the median full-time disposable income. But if the average mortgage rate goes up to 6%, that proportion of income goes up to more than 60%.

At the start of last year, you would have been paying an average £725 a month if you had put down a 25% deposit on a £230,000 house. At current rates this will be over £1,000. The average price of a house in the UK is now £304,587 and around half of that in Stoke-on-Trent.

Dean said: “It isn’t all doom and gloom, by any means. There’s been much publicised instability but the mortgage market hasn’t dried up. You should engage with a suitably qualified mortgage professional who would be able to assess your individual circumstances and source and recommend the most appropriate mortgage product for your needs.

“Mortgage products fell from 4,000 to around 2,300 on October 11th but are now beginning to recover and could hit 3,000 again soon”.

Domestic energy prices have risen throughout 2022 due to factors including war in Ukraine. In winter 2021/22, electric cost 20.8 pence per kWh (Kilowatt hour) and gas cost 4.1 pence per kWh. In winter 2022/23. This will rise to 34 pence per kWh for electricity and 10.3 pence per kWh for gas.

Dean founded Signature Funding Solutions in 2009 and recently celebrated their 13th Anniversary on 14th October.

This was posted in Bdaily's Members' News section by Nigel Howle .