The government agreed support measures for mortgage holders

The government has announced a series of new measures in collaboration with lenders to provide support to mortgage holders amidst rising interest rates and tightening affordability challenges. It emphasized that the current situation is distinct from the 2008 financial crisis, highlighting that the proportion of disposable income spent on mortgage payments stands at 5.4% compared to approximately 10% in the 1990s and prior to the crisis.

The government also revealed that the average homeowner who has remortgaged in the past year holds a loan-to-value ratio of around 50%, indicating substantial equity in their homes. Furthermore, lenders now have fewer than 10% of owner-occupier mortgages with loan-to-value rates exceeding 75%, a significant improvement compared to around 25% before the 2008 financial crisis.

Nevertheless, a majority of lenders, covering more than 75% of the market, have agreed upon a new mortgage charter to support residential mortgage customers. The key provisions of this charter are as follows:

1. Assistance for Worried Mortgage Holders: Individuals concerned about their mortgage repayments can contact their lenders to receive information and support without any negative impact on their credit score.
2. Repossession Protection: Homeowners will not face forced repossession within 12 months from their first missed payment.
3. Flexibility for Fixed-Rate Deals: Customers approaching the end of a fixed-rate deal will be offered the opportunity to secure a new deal up to six months in advance. They will also have the option to apply for a better deal until their new term begins, subject to availability, without affecting their credit score.
4. Options for Interest-Only Mortgages or Extended Terms: A new agreement allows customers to switch to an interest-only mortgage for six months or extend their mortgage term to reduce monthly payments. They can subsequently switch back to their original term within the first six months, all without requiring a new affordability check or impacting their credit score.
5. Seamless Transition for Mortgage Deal Renewal: Customers who are up-to-date with payments will be supported to switch to a new mortgage deal at the end of their existing fixed-rate deal without undergoing another affordability check.
6. Proactive Information Provision: Well-timed information will be provided to help customers plan ahead, particularly when their current rate is due to expire.
7. Tailored Support for Those in Need: Customers facing financial difficulties will receive personalized support, including options such as extending their mortgage term to reduce payments, switching to interest-only payments, or exploring other suitable solutions. The appropriate course of action will depend on each customer’s circumstances.

Chancellor of the Exchequer, Jeremy Hunt, emphasized that these measures aim to provide reassurance to those anxious about high interest rates and support those encountering financial difficulties. The government is committed to collaborating with the Bank of England to address the challenges posed by high inflation and acknowledges the pressures experienced by families.

Nikhil Rathi, Chief Executive of the Financial Conduct Authority, affirmed that they will swiftly make any necessary changes to support the commitments made in response to the current situation. Martin Lewis, founder of Money Saving Expert, expressed satisfaction with the measures, particularly the focus on flexible forbearance to ensure that individuals seeking help from lenders are protected from detrimental effects on their financial situation and credit scores.

It is essential that mortgage holders are aware of their rights when facing difficulties, enabling them to engage with their lenders and understand the available support measures.