A new “mortgage charter” designed to help homeowners with rising repayments has been signed by most of the UK’s biggest lenders.
This week chancellor Jeremy Hunt announced the new measures would come into force within weeks as climbing interest ratescreate a "mortgage timebomb" for homeowners.
The charter - agreed between the government, principal mortgage lenders and the Financial Conduct Authority – has been signed by major lenders Barclays, Natwest, Lloyds and many others.
It includes commitments to allow struggling mortgage customers to lower monthly costs by switching to interest-only payments for six months, or extending a mortgage term.
The measures come after the Bank of England upped the base rate from 4.5 per cent to 5 per cent last week in a bid to slow soaring inflation.
This had a big knock-on effect for mortgages, with those on trackers or coming off their fixed-term deals facing higher monthly repayments.
The average rate on a two-year fixed deal has now soared to 6.19 per cent.
What help does the Mortgage Charter offer?
Firstly, from July 10 anyone can talk to their bank or mortgage lender for information and support, and this will have no impact on their credit score.
Lenders have also agreed to offer borrowers a new rate six months before their fixed deal ends, and the option to move to a new deal with the same lender if a better option is available before the end of their current deal.
While this has often been done in the past, it is now a firm commitment.
People can also switch to interest-only payments for six months or extend their mortgage term to reduce their monthly payments.
Customers will be given the option to revert to their original term within six months by contacting their lender.
Customers also won’t be forced to have their homes repossessed within 12 months of their first missed payment. This has already come into effect.
Who has signed up?
Lenders who have already signed the charter include the ‘Big Six’ banks: Lloyds, Barclays, HSBC, Nationwide, Natwest, Santander.
Other signatories include Virgin Money, TSB, and a host of building societies, which together represent approximately 85 per cent of the mortgage market.
How has the mortgage charter gone down?
Most brokers have welcomed the forbearance measures to help mortgage customers.
Louis Mason of specialist mortgage broker Oportolio said the company was “very happy” to see lenders taking steps to support struggling mortgage borrowers.
However Mason added he was “quite concerned” at the prospect of people who are struggling with their payments moving on to interest-only loans.
“Taking a six-month interest only mortgage could have some serious repercussions when it comes to getting a new mortgage in the future.
Like the mortgage payment holidays during COVID, a six-month interest only mortgage break could look bad for any future mortgage applications,” he said.
“Not to mention the fact that an interest only mortgage will just mean that the borrower will just have the debt for longer.”
Nathan Emerson, CEO at Propertymark also welcomed the charter, adding: “Our member agents have told us that homeowners are currently being penalised for contacting their bank for support and for switching to interest-only mortgages. Therefore, it is now crucial that the banks and building societies step up to deliver on these promises and help homeowners at such a testing time.”
