New measures are being implemented by lenders to support homeowners struggling to cover mortgage payments.
These come after months of mortgage market turmoil, with rising interest rates driving up mortgage rates and leaving borrowers facing sharp hikes in their monthly repayments.
The measures, which were agreed between the Chancellor of the Exchequer, the UK’s principal mortgage lenders and the Financial Conduct Authority (FCA), were announced by the government on Friday, although it has yet to confirm the exact date when they will come into effect. Here’s what you need to know.
Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage. If you’re looking for expert mortgage advice, you can speak to an independent mortgage broker with Unbiased. Every advisor you find through Unbiased will be FCA-regulated, qualified and unconnected to product providers – so they can offer you truly unbiased advice.
How will the support measures help?
The measures do not include any form of direct financial help. Rather, they are a series of services than lenders are expected to offer to customers to make it easier for them to seek assistance with repayments, find and be accepted for new fixed-rate deals, and change certain aspects of their mortgage term if need be, all without impacting their credit score or needing to go through affordability checks.
Mortgage holders who are worried about meeting their monthly repayments will be able to contact their lender for information and help without this impacting their credit score. Lenders must offer “tailored support” from “highly trained staff” for those struggling, such as extending their mortgage term or offering a switch to interest-only payments.
From the 10th of July, customers nearing the end of a fixed-rate deal will be offered the chance to lock into a new deal up to six months in advance, and have the freedom to apply for a better deal right up until the new start date if they so choose. Customers who are up to date with their payments will be able to switch to a new deal without undergoing an affordability check, and lenders are expected to provide “well-timed information to help customers plan ahead” if their current fixed-rate deal is ending soon.
Customers also will be allowed to switch to an interest-only mortgage for six months, meaning they will only make interest payments for this period and not payments on the mortgage balance itself, without affordability checks or any impact on their credit score.
Alternatively, customers will be able to extend their mortgage term (in order to spread out and reduce their monthly payments) and then switch back to their original term if they change their mind, within the first six months of a mortgage, again without affordability checks or any impact on their credit score.
Finally, customers cannot have their homes repossessed without consent within 12 months of their first missed payment – this measure has already been implemented. Find out more about how repossession works in our article Will I lose my home if I can’t pay my mortgage?
Jeremy Hunt, Chancellor of the Exchequer, said: “If you are anxious about the impact on your family finances and you change your mortgage to interest only or you extend the term of your mortgage and you want to go back to your original mortgage deal, within six months, you can do so, no questions asked and no impact on your credit score. That gives people a powerful new tool for managing their monthly budgets – and it will begin taking effect within the next two weeks.”
Crucially, anyone who is worried about not being able to pay their mortgage should speak to their lender as soon as possible, as the earlier you act, the more options you’re likely to have available to you.
Martin Lewis, founder of MoneySavingExpert.com, said: “The unprecedented steep rise in mortgage rates is causing a nightmare for many with variable mortgages and those coming off fixes.
“I met the Chancellor on Wednesday and reiterated that the minimum we needed was to ensure that when people asked for help from lenders, they knew that if things changed, it wouldn’t be detrimental to their financial situation and their credit scores would be protected as much as possible.
“I’m pleased to see it looks like the Chancellor has listened and those measures are going to be put in practice by the banks. We need to make sure everybody knows their rights if they are in trouble with their mortgage, so they can feel comfortable speaking with their lender and understand the measures that they can request for help.”
You can read more about how to weather the current turmoil in the mortgage market in our article Mortgage market mayhem: what it means for you and about what to do if you’re struggling to cover steeper payments in our guide What can you do if you can’t pay your mortgage?
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