The UK government is bringing in new measures to support mortgage holders.
30 June 2023
By Lisa Hall
As interest rates rise and financial strain increases, the UK government has stepped in to help mortgage holders feel more secure. What are the new measures being brought in to support homeowners?
What’s been happening to UK mortgages?
Over the past year, inflation has soared and prices have risen. On the 22nd of June, The Bank of England increased interest rates further from 4.5% to 5%. This was more than expected and is now at its highest level since the financial crash of 2008.
This increase was done in an effort to curb even higher rates in the future. Bank governor Andrew Bailey said that if they didn’t make the increase now, "it could become worse later."
However, the rise does mean that repayments for mortgage holders have become steeper. This coupled with the cost of living crisis has led to fears from homeowners about how this could have an impact on their families.
To put into perspective how much interest rates are rising, we only need to look at last year's rates. In 2022, the average two-year fixed rate mortgage had interest rates of about 3%. As of now, those residential mortgages have increased to an average of 6.19%.
Being able to keep up with loan repayments has become extremely difficult. So, to combat this, lenders (75% of the market) have banded together and agreed to a new mortgage charter.
What measures have been put in place?
Credit score protection
Any borrower is able to call their lender for information and support without this having any impact on their credit score. This allows for mortgage holders to find the support they need without being worried about the impact on their credit score.
12-month repossession grace period
For homeowners at real risk of losing their homes because they fall behind on mortgage payments, there will be a grace period of 12 months from the first missed repayment to pay the lender before the home is repossessed.
Homeowners who are reaching the end of their fixed-rate deal will have the opportunity to lock in a new deal up to 6 months ahead. They’ll also be offered the chance to apply for a better deal, even if it is just before their new term starts. This is dependent on availability.
A temporary mortgage alteration
Customers will be given a couple of mortgage alteration options. One is the chance to switch to an interest-only mortgage for six months.
The second is that they can extend their mortgage term. This is to reduce their monthly mortgage loan payments. From there, they can then switch back to their original term within the first six months. Both of these options can be done without any impact on credit scores and without taking out a new affordability check.
New mortgage deal
For homeowners who are up to date with their loan payments, they’ll have the opportunity to switch to a new mortgage deal once they’ve finished their existing fixed rate deal. Again, this can be done without the need for another affordability check.
Mortgage holders will be given information to help them plan ahead should their current rate be coming to an end.
Support for homeowners who are struggling will be available. Highly trained staff will offer tailored help which could include the extension of terms to reduce payments, offering a switch to interest-only payments, and more.
The Chancellor of the Exchequer, Jeremy Hunt, said that the measures “should offer comfort to those who are anxious about high interest rates and support for those who do get into difficulty.” He went on to say that tackling inflation is the “number one priority” for him and Prime Minister Rishi Sunak.
Martin Lewis, the founder of MoneySavingExpert.com, met with the Chancellor, Jeremy Hunt on the 21st of June to discuss how mortgage interest increases are becoming a “nightmare” for homeowners. He emphasised the importance of credit score protection when things change as they have, especially with the increased cost of living. Lewis said he was “pleased to see it looks like the Chancellor has listened and those measures are going to be put in practice by the banks.”
If you’re looking for support in finding the right mortgage for you – or a better mortgage than you already have, you can get free mortgage guidance from Mortgage Advice Bureau via reallymoving.
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