After a week of meetings with finance experts and mortgage lenders, Chancellor of the Exchequer Jeremy Hunt has today announced that lenders will allow mortgage holders who are unable to meet their mortgage payment commitments a grace period of at least 12 months before repossession processes are started. The announcement also includes reassurances to those mortgage holders who choose to switch from repayment to interest-only mortgage products or opt to extend the term of their mortgage contracts.
Why is the government speaking to lenders?
Representatives from a number of mortgage lenders in the UK including, Lloyds, NatWest, Barclays and Virgin Money met with the chancellor today to discuss the effects of rising interest rates on mortgage holders. After another base rate increase from the Bank of England yesterday which saw the rate rise from 4.5% to 5%, there has been much speculation about the financial pressure that increased mortgage payments will put upon some 2.4 million households that will need to remortgage from their current deals between now and the end of 2024.
Despite reassurances from the prime minister, Rishi Sunak, that lenders have been encouraged to treat customers sympathetically (citing the Consumer Duty Act that will come into effect in July 2023 as a tool to hold lenders to account), many have sought more robust announcements of support for the households that will struggle to afford the increased cost of their mortgages.
How will lenders support mortgage holders?
12-month grace period before repossessions
Lenders have agreed to introduce a 12-month grace period for mortgage holders who are unable to afford their mortgage payments before any repossession proceedings are started. Although this will provide some relief to households by giving them breathing space to consider how they will adapt to their new circumstances, mortgage holders have been encouraged to speak to lenders to discuss other options that may help them avoid such an eventuality entirely.
Mortgage switching flexibility
Mortgage lenders have also agreed to allow mortgage customers to extend the term of the mortgage or switch to interest-only repayments for up to 6 months without any adverse impact on their credit files. After 6 months you will be able to switch back to your repayment mortgage on the same terms as before. These changes will help struggling households by temporarily lowering monthly mortgage payments.
However, switching from a repayment to an interest-only mortgage temporarily will mean that the balance of the mortgage remains the same and as such, it may take longer to repay the mortgage loan. It will also remain the case that missing mortgage payments or taking a mortgage holiday, which is an agreed break from paying mortgage payments, will still adversely impact a borrower's credit report.
What to do if your mortgage payment has or will increase
Mortgage customers coming out of fixed-term mortgage deals, or those on variable-rate mortgages will more than likely see a marked increase in their monthly mortgage payments due to increased mortgage interest rates.
If you are able to adapt your finances to afford your new monthly mortgage payment, there is nothing that you need to do. However, you should ensure that you have searched the market for the best available rates before tying into a new mortgage deal with your current lender. If you have kept up with your mortgage payments, have a good credit score and can meet the affordability criteria for your mortgage loan, you should be able to access most mortgage deals in the market. You can search for the best mortgage rates for your needs using our mortgage rate comparison tool.
It is a good idea to speak with a mortgage broker who will be able to search for mortgage deals on your behalf as well as guide you to the best solutions based on your specific needs. If you do not have a mortgage broker, you can find one in your local area using the professional directory services, VouchedFor* or Unbiased*. You will find listings of qualified mortgage professionals along with customers' reviews to help you make your selection.
What to do if you cannot afford your mortgage payments
If you are unable to afford your mortgage payments, you should speak to your lender immediately to start discussions to address your affordability concerns. Falling behind with your mortgage payments could adversely affect your credit file making it harder to find solutions that could help you adapt to the increased rates.
You can also contact any one of a number of debt charities that will provide appropriate guidance and support for you. We have listed some of these below.
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