Support measures announced for mortgage holders following interest rate rise

Following the Bank of England’s decision to raise its base interest rate to 5%, Chancellor of the Exchequer Jeremy Hunt has announced new support measures for homeowners struggling with rising mortgage repayments.

On 22nd June, the Bank of England’s Monetary Policy Committee (MPC) has agreed its 13th consecutive rise in its base interest rates, which now stand at 5%.

The 0.5 percentage point increase brings the bank’s base rate to its highest level since early 2008, prior to the global financial crisis that ushered in over a decade of close-to-zero interest rates. The decision follows yesterday’s release of April inflation data, which saw the Consumer Price Index unchanged on the previous month at 8.7%, as the Bank of England continues to aim to combat persistent high inflation and bring it back to its 2% inflation target.

The increase comes despite concerns over the impact of rate rises on homeowners, as higher mortgage rates resulting from recent base rate rises as more borrowers’ fixed-rate deals come to an end. While interest rates remain well below the double-digit levels seen during the 1980s, the accelerated increase in house prices relative to incomes means interest payments will represent a greater share of household incomes.

As a a consequence of the rates rise, the Chancellor met with the UK’s main lenders and the Financial Conduct Authority (FCA) to agree the support as homeowners face steeply rising repayments on the mortgages as the base interest rate drives up the interest on their borrowing. As a result of the meeting, lenders representing over 75% of the UK mortgage market have agreed a new charter to provide support for residential mortgage customers; support includes:

• anyone worried about repayments can call their lender for information and support without any negative impact on their credit score
• repossessions will not take place for at least 12 months after the first missed payment
• customers nearing the end of a fixed rate deal will be able to lock in a new deal up to six months ahead, or apply for a better deal (if one is available) before their contract ends
• customers will be permitted to switch to an interest-only mortgage for six months or temporarily extend their mortgage term for six months to help reduce repayments
• allowing existing customers with up-to-date payments to switch to a new mortgage deal without another affordability check

Chancellor of the Exchequer, Jeremy Hunt, said:

“There are two groups of people that we are particularly worried about. The first are people who are at real risk of losing their homes because they fall behind in their mortgage payments. And the second are people who are having to change their mortgage because their fixed rate comes to an end, and they’re worried about the impact on their family finances of higher mortgage rates.

“So today I agreed with the banks and the principal mortgage lenders and the Financial Conduct Authority three very important things.

“The first is that absolutely anyone can talk to their bank or their mortgage lender and it will have no impact whatsoever on their credit score.

“The second is that 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.

“And finally for people who are at risk of losing their home in that extreme situation, the banks and mortgage lenders have a number of things in place. The last thing that they want to do to repossess a home, but in that extreme situation they have agreed there will be a minimum 12 month period before there’s a repossession 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.”

The announced agreement between the Chancellor, lenders and the FCA have been welcomed by consumer rights groups. Martin Lewis, founder of MoneySavingExpert.com, who met with the Chancellor ahead of the Bank of England’s rate rise to call for greater support for mortgage holders, commented:

“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.”