The Government has unveiled three new key measures to help families struggling to meet increased mortgage payments in the cost of living crisis.
Chancellor Jeremy Hunt announced the plan to help homeowners after a summit with high street bank bosses, but he resisted giving into calls to offer a major support package to mortgage holders, amid fears it could risk further fuelling inflation.
It's expected that hundreds of thousands of borrowers could face payment difficulties over the next year after rapidly rising mortgage interest rates over recent weeks. Thursday's announcement by the Bank of England that the base rate would rise from 4.5% to 5% is expected to fuel further rises, piling more misery on homeowners.
Read more: Mortgage advice for any households struggling to make payments due to rising bills
The Financial Conduct Authority earlier this year said that mortgage customers should be able to speak to their lender about their options without any effect on their credit rating, but the new changes go further than that, although no start date has yet been announced for the new support.
The three key changes are:
-
More flexibility to change mortgage terms. You'll be able to switch to interest-only repayments or extend your mortgage term for up to six months, which will lower your monthly payments, without it having an impact on your credit rating. You should also be able to switch back to your previous terms afterwards
-
You can lock in a new fixed deal without being tied in: You can arrange a new fix up to six months before your old one ends, but if a better deal comes up, you'll be able to apply for it instead.
- Your home won't be repossessed for at least a year: Once you miss a payment, your lender will not start forcible repossession for at least 12 months, which should give you some breathing space to sort things out.
Mr Hunt said that tackling high inflation was the "number one priority" for Prime Minister Rishi Sunak and himself. He 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. 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.
"We know the pressure that families are feeling. That's why we've introduced big support packages, around £3,000 for the average household this year and last. We will do what it takes and we won't flinch in our resolve because we know that getting rid of high inflation from our economy is the only way that we can ultimately relieve pressure on family finances and on businesses."
Martin Lewis said: "The unprecedented steep rise in mortgage rates is causing a nightmare for many with variable mortgages and those coming off fixes. Therefore, the most important thing we can focus on right now is appropriate, flexible forbearance measures. While the Bank of England's aim is intended to squeeze people’s disposable incomes, no-one wants people’s lives to be ruined by arrears and repossessions – and that is the urgent protection we need to focus on.
"I met the Chancellor on Wednesday and reiterated that the minimum we needed was to ensure that when people asked for help from lenders, they knew that if things changed, it wouldn't be detrimental to their financial situation and their credit scores would be protected as much as possible.
"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.”
But Shadow Chancellor Rachel Reeves said the Government needed to take greater responsibility. She said: "Questions remain on how voluntary these measures are. The Government must offer clarity and confidence to homeowners by putting in place requirements now to reassure households. Instead of shrugging their shoulders, the Tories should be taking responsibility and acting now.”
Liberal Democrat Treasury spokesperson Sarah Olney 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."
