Banks will be able to offer help to homeowners worried about their mortgage payments under an updated agreement following government talks. Struggling households will be able to switch to an interest-only mortgage for six months.
Borrowers will also be able to extend the term of their loan to make it cheaper without the need for a bank affordability to check. Chancellor Jeremy Hunt has agreed on three new rules with the banks, the principal mortgage lenders and the Financial Conduct Authority.
Standards have been set for how banks should give breathing space to homeowners amid fears of a mortgage time bomb. It comes amid rising mortgage mortgage rates, with an average two-year fixed rate now sitting at 6.39 per cent and expectations that the Bank of England will up interest rates further.
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The new agreement means that anyone can talk to their bank or their mortgage lender and it will have no impact whatsoever on their credit score. Families who choose to change their mortgage to interest-only or extend the term of their mortgage will be able to go back to their original mortgage deal within six months ‘no questions asked’ and with no impact on their 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,” said Mr Hunt.
Finally, for people who are at risk of losing their home, in the extreme situation that the property is at risk of being repossessed, there will now be a minimum 12-month period before a repossession can be made without consent.
“These measures should offer comfort to those who are anxious about high interest rates and support for those who do get into difficulty,” said Mr Hunt.
“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. That’s why we’ve introduced big support packages around £3,000 for the average household this year and last.
“But we will do what it takes, and we won’t flinch in our resolve because we know that getting rid of high inflation from our economy is the only way that we can ultimately relieve pressure on family finances and on businesses.”
Martin Lewis, founder of Money Saving Expert, said: “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.”
