Jeremy Hunt rules out costly mortgage help for homeowners
Chancellor Jeremy Hunt has hammered out a deal with banks to help millions hit by “unprecedented” mortgage hikes keep hold of their homes.
It means people crippled by soaring bills can switch to interest-only mortgages or extend their loans – and then go back to their original deal within six months.
They will also be able to receive help without being penalised by taking a hit to their credit score.
The new ‘mortgage charter’ also prevents homes from being repossessed without consent in the twelve months after the first missed payment.
It came after he summoned lenders to Downing Street, urging them to offer more support to struggling households.
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Jeremy Hunt to help mortgage owners
Mr Hunt said the new measures announced by the Treasury “should offer comfort to those who are anxious about high interest rates”.
After meeting with the bosses of HSBC, Santander and Barclays among others, the Chancellor declared yesterday: “These measures should offer comfort to those who are anxious about high interest rates and support for those who do get into difficulty.
“Tackling high inflation is the Prime Minister and my number one priority. We are absolutely committed to supporting the Bank of England to do what it takes. 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.
“But 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.”
Mr Hunt described measures allowing families to switch to interest-only deals or to extend their terms as a “powerful new tool for managing their monthly budgets.”
The measures will come into force within two weeks as concern mounts over the Bank of England hiking interest rates to five percent.
Andrew Bailey, governor of the Bank of England
Market traders yesterday predicted interest rates could peak at 6.25 percent, further hitting household finances.
he Bank of England is desperately trying to bring inflation under control after being accused of doing “too little, too late” to reign in surging prices.
Mr Hunt admitted the Government is “particularly worried” about people at risk of losing their homes because they will fall behind in their mortgage payments and those who are about to see their bills skyrocket as their fixed deals come to an end.
Under the new mortgage charter, repossessions will not be triggered until 12 months after the first payments.
Previously, lenders would consider taking action if homeowners missed three payments. And to avoid falling into financial ruin and losing their home, people can switch to interest-only mortgages without it hitting their credit score.
They will receive help from banks or building societies without being penalised.The changes, which come into force within the next fortnight, will impact more than 2.4million people whose fixed-rate deals are ending in 2024.
Personal finance guru 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.”
Bank of England governor Andrew Bailey admitted on Thursday that the 13th consecutive rise in rates since December 2021 would cause “difficulty and pain” for many. Those with loans would be “understandably worried” he said.
An average two-year fixed rate mortgage has rocketed to 6.19 percent, while the five-year rate rose to 5.82 percent, according to financial data firm Moneyfacts. In June last year those rates were closer to 3 percent.
Personal finance guru Martin Lewis
Rising interest rates can reduce spending in the economy by boosting the incentive to save money.
Alice Haine, personal finance analyst at Bestinvest, said: “These types of measures all help, but they don’t remove the worry for millions of borrowers who are now carefully considering how their finances will cope in the months and years ahead.
“Whether it is a first-time buyer trying to get a foot on the property ladder or someone remortgaging in the next 12 months, or even in three years’ time, mortgage costs are top of the financial concern list for many.
“The reality of rising interest rates, and in turn significantly higher mortgage rates, is that people must drastically cut back their expenditure to ensure they can either afford to get on the property ladder in the first place or have enough money to meet higher repayments as well as their other everyday bills.
“This will require a serious adjustment in spending behaviour at a time when households may also have to contend with falling property prices and a general sense that their wealth is on the decline.”
But the Government faced fresh fury yesterday for failing to protect renters from landlords set to hike bills in the wake of soaring interest rates.
Tom Darling, campaign manager at the Renters’ Reform Coalition, said: “The Government is very quick to move when it comes to mortgage holders, a constituency they deem electorally important.
“Meanwhile, we have had to wait 4 years for the Renters (Reform) Bill, and it seems to have disappeared shortly after being published.
“Our proposal to include in the Bill an index-linked limit on rent increases would stop unaffordable rent increases being used to evict tenants, and alongside this the Government could tackle the crisis in affordability of renting by unfreezing housing benefit and building a whole lot more social housing.”
Banks and building societies were also heavily criticised yesterday for failing to pass on higher interest rates to savers.
Mr Lewis added: “They’re putting borrowing up, but they’re not putting savings up by the same amount. That seems absolutely outrageous to me, because when the banks were struggling in 2007/2008, we, the state, the taxpayer, bailed them out.
“We, the state, the taxpayer are struggling right now. They should be doing what they can in return, because they’re too big to fail and, now, they don’t want us to fail. They should be doing what they can in return.”
Thirteenth time lucky? On Thursday, to curb inflation, the Bank of England did what it has done consecutively for over a year and increased the base rate by a whopping half a percentage point, to five per cent.
In the build up to the rise, lenders were pulling mortgage deals from the market only for them to return at much higher rates. The average deal for a two-year, fixed-rate mortgage crept above six per cent for the first time since December.
Historically, a six per cent rate may not seem that high. Those of a certain vintage will point
to the early 1990s, where the average rate hovered around
13 per cent.
But the key thing to remember about now – and the reason why a higher base rate is of concern – is that, as wages haven’t kept pace with inflation, mortgage repayments make up a much higher proportion of earnings.
Throw in the additional cost of food and energy bills and there is huge concern about how mortgage holders who are either approaching the end of their fixed rate deal or on tracker or standard variable rate deals will cope. So, if that’s you – what are your options? The first thing to do is speak to your lender. The support available includes a temporary break from payments, switching to interest-only payments or extending the term of your mortgage.
If you’re coming off your fixed-term deal within six months, check what your lender can offer and also talk to an independent mortgage broker.
You can certainly do better than your current lenders’ standard rate. Remortgages can take weeks to arrange, so don’t leave it too late.
The Financial Conduct Authority has already had to write to banks reminding them of their obligations to provide tailored support to customers.