When people lose their jobs, their immediate concern is their loss of income. But for homeowners, there’s an additional ‘true cost’ that is going unnoticed.
The harsh reality of redundancies has become impossible to ignore.
The latest Labour Market Outlook, published by the CIPD, shows that one in four employers are planning redundancies, while employment prospects have drastically fallen across public, private, and voluntary sectors.
Noted as “the lowest (rate) on record”, excluding the pandemic, it’s no real surprise that the combination of mounting financial pressures and declining employment prospects has exacerbated a deep uncertainty about long-term financial planning.
At Boon Brokers, we have experienced an influx of clients contacting us about their refinancing options, usually to ask: ‘Can I remortgage after a redundancy?’
Unfortunately, it is a fact of today that amid the redundancy crisis many homeowners are being caught off guard, finding themselves unemployed and nearing the end of their fixed-rate mortgage deals, only to be transitioned onto their lender’s standard variable rate.
Most notably here is that the lender’s standard variable rate will generally be much higher and less predictable than a fixed-term rate or tracker mortgage.
A double cost setback
While this may not be at the forefront of homeowners minds, to those who are already struggling through an unexpected redundancy, the financial reality can start to look bleak.
Essentially, the knock-on effect of redundancy is leaving homeowners grappling with a double cost setback.
First, the immediate loss of income may lead to defaults on mortgage repayments.
If these defaults persist, the borrowers’ credit files will suffer, making refinancing at a lower interest rate even more difficult even after they secure new employment.
At the same time, many borrowers who are made redundant are finding themselves unable to refinance their mortgages.
As a result, their mortgage terms often switch to the lender’s standard variable rate, which will typically be much higher than the fixed-rate or tracker mortgage they had previously.
This transition to a higher rate further compounds their financial strain, creating a snowballing effect that builds financial pressure and is rolling many deeper into crippling debt or repossession of their property.
Proactivity is key
As the UK demonstrates a less than prosperous financial backdrop, it is crucial for homeowners to understand the importance of their refinancing options, before the crisis becomes further widespread.
The adage ‘a stitch in time saves nine’ holds more truth than ever before in this context, as proactivity is key.
In a time where the cost of living is drastically increasing, redundancy, as outlined by the CIPD, is rising, and the opportunities for employment and financial stability are falling.
The need for preparing for financial difficulty has never before screamed as loud: ‘Act now!’
Homeowners need to be aware that acting while you are still in a state of financial security can make all the difference.
For lenders, the aim is simple: ensuring that you can reliably repay any loan amount you agree on.
As such, negotiating at the time of your financial security will provide you with many more options and can help you secure the best rates that follow your financial plan.
While it might be too bold of a statement to say one look out of your window reveals the UK’s slowing growth, you need only be an avid reader of the Financial Times to see that the economic forecast of the UK predicts further turbulence.
Now is the time for borrowers to increase their knowledge about their options and to investigate refinancing in the context of securing their personal finance.
One of the most effective steps a homeowner can take is to seek early guidance from a qualified, whole-of-market mortgage broker.
It is a troubling fact that acting too late will inevitably cause the double cost of redundancy within the scope of refinancing, but there may still be options.
For example, some lenders are now prepared to assess affordability based on a signed contract of employment, even if the job’s start date is in the near future.
For borrowers who are able to secure a new job, this provides a realistic opportunity to bridge the affordability gap and regain a financial footing.
For those still in employment today but fearful of the redundancy crisis, the takeaway is clear: Review your current mortgage situation and the expiry dates of your fixed rate and consider consulting with either a financial adviser or trusted broker.
While the redundancy crisis continues and the UK job market remains reportedly unpredictable, homeowners need to keep in mind that taking early action can mean the difference between maintaining control over your financial future and being overwhelmed by the double cost of redundancy.
Gerard Boon is managing director at Boon Brokers
