The government has confirmed that it has agreed with lenders a range of new support measures for mortgage holders in the face of rising interest rates and an increasingly tight affordability squeeze on borrowers.
The government stressed that the situation is not currently comparable with that of the 2008 financial crisis. The Treasury said the proportion of disposable income spent on mortgage payments is currently at 5.4%, compared to around 10% in the 1990s and prior to the financial crisis.
The government added that the average homeowner re-mortgaging over the last twelve months had around a 50% loan-to-value ratio. This indicates homeowners have considerable equity in their homes. They added that enders have less than 10% owner-occupier mortgages on their books with loan-to-value rates greater than 75%, compared to around 25% before the 2008 financial crisis.
Nevertheless, lenders covering over 75% of the market agreed to a new mortgage charter providing support residential mortgage customers. These are:
- Anyone worried about their mortgage repayments can call their lender for information and support without any impact on their credit score
- Customers won’t be forced to have their homes repossessed within 12 months from their first missed payment
- Customers approaching the end of a fixed-rate deal will be offered the chance to lock in a deal up to six months ahead. They will also be able to apply for a better deal right up until their new term starts, if one is available.
- A new agreement between lenders, the FCA and the government permitting customers to switch to an interest-only mortgage for six months, or extend their mortgage term to reduce their monthly payments and switch back to their original term within the first six months, if they choose to. Both options can be taken without a new affordability check or affecting their credit score
- Support for customers who are up-to-date with payments to switch to a new mortgage deal at the end of their existing fixed rate deal without another affordability check
- Providing well-timed information to help customers plan ahead should their current rate be due to end
- Tailored support for anyone struggling and deploy highly trained staff to help customers. This could mean extending their term to reduce their payments, offering a switch to interest only payments, but also a range of other options like a temporary payment deferral or part interest-part repayment. The right option will depend on the customer’s circumstances
Chancellor of the Exchequer Jeremy Hunt said:
“These measures should offer comfort to those who are anxious about high interest rates and support for those who do get into difficulty.
Tackling high inflation is the Prime Minister and my number one priority. We are absolutely committed to supporting the Bank of England to do what it takes. We know the pressure that families are feeling.”
Nikhil Rathi, chief executive of the Financial Conduct Authority, added they will “move quickly to make any changes needed to support today’s commitments”.
Martin Lewis, founder of MoneySavingExpert.com, commented:
“The unprecedented steep rise in mortgage rates is causing a nightmare for many with variable mortgages and those coming off fixes. Therefore, the most important thing we can focus on right now is appropriate, flexible forbearance measures. While the Bank of England’s aim is intended to squeeze people’s disposable incomes, no one wants people’s lives to be ruined by arrears and repossessions – and that is the urgent protection we need to focus on.
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.”
