Lenders have also agreed to a 12-month delay before starting the repossession process as part of the measures aimed at relieving some of the pressure for homeowners facing financial difficulties.
The changes come following weeks of mortgage price rises and product withdrawals which are hitting borrowers with variable and tracker rate mortgages plus those remortgaging to new deals.
After the Bank of England raised interest rates to 5% yesterday as part of its continued its attempts to curb inflation, the Chancellor Jeremy Hunt (pictured) agreed to meet with lenders to discuss possible support.
Whilst the result of the Chancellor’s meeting with bank bosses today will offer some relief to homeowners, not everyone was convinced he had gone far enough to support households facing difficulties.
Sarah Olney MP, the Liberal Democrat’s treasury spokesperson said: “This is a sticking plaster for a gushing wound. Even after today, bailiffs will still be knocking on people’s doors because the government refused to help.”
She added: “Britain is facing a mortgage crisis and we have a Chancellor who simply isn’t up to the job. Jeremy Hunt is failing on his inflation target and now failing to help families with the consequences.”
Mortgage brokers welcomed the move but agreed more must be done to support people who may find it impossible to make their mortgage payments.
Hannah Bashford, director at Model Financial Solutions said it would be welcome news for some people who are worried about affordability coming off of a low rate onto something much higher.
“However,” she added: “this is only a short-term solution because people’s debt remains and interest rates may remain high. In that sense, it is more of a sticking plaster, not a cure.
“Ultimately this is kicking the problem down the road and should not be seen as an easy option to increase disposable income as the debt will remain and people still need a plan to pay it off. Speaking to an adviser before you get into difficulty is key to long-term financial security.”
What to do if you need to access this support
The flexible options being offered today come from the lenders not the government, so if you are worried about paying your mortgage you must first contact your lender.
The Chancellor said those making changes to their mortgage – either switching to interest-only or extending the term – can return to their original mortgage deal, ‘no questions asked’, within six months. There would be no impact on your credit report if you were to make these changes under the current circumstances.
Karen Noye, mortgage expert at Quilter:” Hopefully this can give people a bit of breathing room to find additional streams of income or get their finances in order.
“It also provides reassurance to borrowers who may be concerned about the long-term consequences of making changes to their mortgage arrangements.
However, this support looks likely to provide a short-term solution and borrowers should be aware there will be longer-term implications if they were to reduce payments.
Noye added: “It is crucial to remain vigilant and understand that missing payments or opting for a complete payment break, commonly known as a mortgage holiday, may still affect future borrowing opportunities.”
