Just two years ago borrowing was effectively free. I, and thousands like me, bought a house at a time when central interest rates were at their lowest levels on record – just 0.1pc. It meant I could borrow hundreds of thousands of pounds and pay just 1.3pc in interest on the loan.
But fast forward to today and average mortgage costs are close to six times this level.
As summer came to an end, I faced, at best, a £600 jump in my monthly repayments – with a one-year-old in tow and a partner yet to return to work. Others with bigger mortgages have had it far worse.
This paradigm shift means the typical borrower coming to the end of their fixed mortgage deals between now and the end of 2026 will endure mortgage bill increases of almost 40pc, according to the Bank of England.
Families are already feeling the strain, with 100,000 now behind on their mortgage bills, according to the banking trade body UK Finance – up 9pc compared to the three months to June.
Despite the very real mortgage crisis gripping the country, I have managed to shield myself entirely from the pain now being endured by homeowners across the country. In fact (he says smugly, rubbing his hands with self-satisfaction) my monthly payments have gone down.
I am now paying close to £100 a month less than I otherwise would have been had I not taken out an “offset” mortgage.
This saving-linked loan allows you to use surplus cash to balance the cost of your loan repayments. You sacrifice savings interest in return for a reduction in monthly payments or a shorter mortgage term. They are little known and little used. Just five or so lenders provide them currently, according to mortgage broker London Money.
Someone with a £225,000 mortgage, over a term of 35 years, could save £500 a month in interest with £20,000 in an offset account – assuming an interest rate of 5.7pc.
Not only does it save on your monthly mortgage bill, but it slashes the tax on your savings. As savings rates have risen, and tax-free allowances become derisory, more people are being caught out. A higher-rate taxpayer can only earn £500 from their savings before they must pay tax on the interest.
Now, I must confess the only reason I have been able to make such significant savings is thanks to a relatively large windfall I received some years ago, part of which I used to purchase my home and the rest of which is now providing protection from high mortgage rates.
The more money you have in your offset savings account the more your mortgage bill falls.
Of course, most do not have such levels of spare cash lying around. But the point here is about financial responsibility, restraint and control.
My generation is one which has grown entirely accustomed to cheap debt, following more than a decade of ultra-low interest rates in the wake of the financial crisis. It is in stark contrast to those who experienced rates as high as 17pc during the late 1980s.
This cheap borrowing has helped to push up property prices far out of kilter with wage inflation. To keep up, would-be homeowners have been encouraged to borrow as much as possible, over-extending themselves on fixed-rate deals, on top of cheap car finance for luxury vehicles.
They now face a reckoning. Clearly something has to change.
With the benefit of hindsight, it is clear to see that restraint – resisting the urge to put all your eggs in one basket – would eventually be met with reward. I was advised to stretch my borrowing as far as possible – I’m incredibly glad I didn’t.
Now mortgage rates have reverted close to their long-term averages, and savings rates have improved with them, restoring our personal cash reserves. Regaining control over our own money is the best way to unchain ourselves from the calamitous risks of overborrowing.
Mortgage crisis: how much more you will pay as rates remain high