Mortgages are all over the headlines at the minute, after the Bank of England raised its base rate to 5.25% at the start of August. It’s the 14th consecutive rise, and the last increase in June sent shockwaves through the mortgage market. As millions approached the end of their two and five-year fixed rates, they faced renewal at new astronomical rates.
The last time interest rates stood at 5.25% was in April 2008. However, a rise to 5.25% would mark a smaller increase than the last dramatic rise to 5% from 4.5% and follows signs that price rises have begun to ease.
Now, a new mortgage charter has been designed to help homeowners who may be struggling with their loan repayments. It’s been signed by the majority of lenders, which should come as a relief to anyone worried about their current financial situation. And, with the average five-year mortgage rate now at 6.01%, compared to 3.89% only 12 months ago, so many have been impacted by these soaring rates.
The charter includes commitments such as allowing mortgage customers who are up to date with their payments but now find themselves in difficulty to lower monthly bills by changing to interest-only payments for six months or extending a mortgage term to reduce their monthly payments. So, it’s definitely worth checking if your lender has signed the charter, to understand what help and support is available to you if you need it.
What’s included in the new mortgage charter?
In the wake of all the economic turmoil, lenders have agreed to offer more flexibility to struggling homeowners. Tailored forbearance measures are already available from providers, but they can vary between lenders.
But, under the new charter the support options must become clearer. This will be regulated by the Financial Conduct Authority (FCA) to ensure that banks and building societies are fulfilling this promise they’ve agreed to.
Flexibility to change mortgage terms
For customers who are up to date with their payments, but will struggle to meet future payments, they can take respite by:
- Switching to interest-only payments for six months
- Or extending their mortgage term, from 25 to 30 years for example, to reduce monthly payments, with the option to switch back to their original term within six months
To make either of these changes, new affordability checks will not be required, and credit ratings will not be impacted. However, if after the six-month period, customers continue to take the relief, then their credit file could be affected.
As of 10th July, customers coming to the end of their fixed-rate deal will be able to secure a new rate with their existing lender, once contacted. This deal can be agreed six months ahead of your current deal expiring.
Once booked in, you will be able to request a better deal from the lender up to two weeks before the new term starts. This happens often already, but its inclusion in the charter reconfirms the commitment from lenders.
Repossession rules eased
With the new charter, anyone who falls into arrears will not have their home repossessed without consent for at least 12 months, unless in exceptional circumstances. This is an extension from the usual repossession process that typically starts after three months.
It’s hoped this offers additional time for homeowners to stabilise their financial situations.
What to consider if you take support
These commitments have been lauded by the FCA, but borrowers should be aware that making changes, even temporary ones, will most likely result in higher monthly payments in the future, or paying back more overall.
For example, if you switch to interest-only payments, it will take longer to pay off your mortgage because you won’t be making a dent on what you owe or increasing the equity you own, only the interest accrued.
Which lenders have signed the mortgage charter?
Around 85% of mortgage providers have signed the mortgage charter. The full list is as follows:
- Bank of Ireland UK
- Bath Building Society
- Buckinghamshire Building Society
- The Co-operative Bank, including Platform and Britannia
- Coventry Building Society
- Darlington Building Society
- Earl Shilton Building Society
- Ecology Building Society
- Family Building Society
- Furness Building Society
- Glasgow Credit Union
- Hinkley & Rugby Building Society
- HSBC, including First Direct
- Leeds Building Society
- Leek Building Society
- Lloyds, including Halifax and Scottish Widows
- Loughborough Building Society
- Melton Mowbray Building Society
- Nationwide Building Society
- NatWest, including RBS and Ulster Bank
- Newcastle Building Society
- Nottingham Building Society
- Principality Building Society
- Progressive Building Society
- Scottish Building Society
- Skipton Building Society
- Suffolk Building Society
- Tipton & Coseley Building Society
- The Vernon Building Society
- United Trust Bank Limited
- Virgin Money, including Clydesdale Bank and Yorkshire Bank
- West Bromwich Building Society
- Yorkshire Building Society
The charter only applies to customers of lenders who have signed up, however if your bank or building society isn’t on the list, that doesn’t mean they don’t offer support. It’s important to contact your lender if you’re struggling to pay or you’re concerned about future payments. These changes will be in place for at least a year, after which the FCA says it will review the pledges.
Mark Harris, chief executive of mortgage broker SPF Private Clients, says: “The need for independent advice is more crucial than ever. There has been considerable volatility with regard to mortgage pricing and while some lenders have started reducing mortgage rates once more, we don’t expect fixed rates to fall back to the sub-1 per cent levels seen not that long ago.
“Borrowers coming off mortgages are in for a payment shock and will have to budget accordingly, cutting back on unnecessary spending and prioritising their mortgage. Inflation is slowly shrinking but has a long way to go to reach the Bank of England’s 2 per cent target, so we can’t rule out further interest rate rises in the short term.
“It is important to plan ahead as much as possible, particularly if you are experiencing difficulties repaying your mortgage. Lenders don’t want to repossess properties and will work with borrowers to come up with a solution but they can only do this if they are kept informed.”
How A-Plan can help
If you are considering a remortgage or you haven’t remortgaged for a while, a whole-of-market mortgage broker should be your first point of call. Lender websites can be overwhelming, but a broker can manage all this for you and more, with access to some exclusive deals that aren’t available from lenders directly.
Find out more about how a mortgage broker can help through SPF. Whether you choose to remortgage, stay put, or move house, your local A-Plan branch is always available to discuss any changes to your home insurance.
Sources: Which?, Moneyfacts