New help for struggling mortgage holders has been announced by lenders in response to the soaring interest rates, with banks and building societies in the UK offering increased flexibility for struggling mortgage holders facing financial difficulties.
Following a meeting between bank executives and Chancellor Jeremy Hunt at Downing Street, it was agreed that borrowers would be granted temporary changes to their mortgage terms with the option to return to their original deal within six months.
Under this arrangement the new help for struggling mortgage holders:
- Homeowners would have the opportunity to make reduced repayments for a short period by paying only the interest on their mortgage. this arrangement
- Chancellor Hunt emphasised that this temporary flexibility in switching terms would not adversely affect individuals’ credit scores, as it may have done in the past. However, it is important to note that missing payments or opting for a complete break, known as a mortgage holiday, will still affect one’s future borrowing ability
- Lenders have also committed to a 12-month delay to further alleviate the situation before initiating repossession proceedings against borrowers unable or unwilling to make long-term payments.
The meeting between bank executives and the Chancellor was deemed “productive” as they left Downing Street, indicating a positive step towards addressing the concerns of struggling mortgage holders.
The decision by the Bank of England to raise interest rates from 4.5% to 5% has caused significant concerns among millions of UK households, leading to tightened budgets and financial constraints.
While the post-meeting announcement does not involve direct government intervention, it serves as a catalyst for raising awareness about available options and encouraging individuals to engage in open conversations with their lenders regarding financial difficulties without feeling hindered by financial barriers.
Labour recently presented a five-point plan to mitigate what they refer to as the “Tory mortgage penalty” and minimise repossessions.
Shadow Chancellor Rachel Reeves, however, criticised the Chancellor’s response as “weak,” raising questions about the voluntary nature of the proposed measures. She emphasised the importance of the government providing clarity and confidence to homeowners by implementing necessary requirements to reassure households.
Although there have been calls from various quarters, including the National Residential Landlords Association (NRLA), for government intervention, such as reintroducing mortgage interest relief and unfreezing certain measures, Chancellor Hunt and Prime Minister Rishi Sunak have dismissed these suggestions.
They argue that providing extensive support for borrowers could undermine the Bank of England’s efforts to combat inflation, which remains stubbornly high at 8.7% as of May.
The interest rate hikes implemented by the Bank of England are primarily aimed at curbing spending in the economy by reducing disposable income. Consequently, providing blanket support to mortgage holders could contradict the central bank’s policy objectives.
Governor Andrew Bailey acknowledged that the consecutive rate rises since December 2021 would undoubtedly cause “difficulty and pain” for many individuals with loans.
Over the past months, mortgage rates have been steadily rising. The average two-year fixed rate mortgage currently stands at 6.19%, while the five-year rate sits at 5.82%, as financial data firm Moneyfacts reported. In comparison, these rates were closer to 3% in June of the previous year.
Rising interest rates can also dampen economic spending by incentivising saving.
In recent weeks, MPs have criticised banks for not fully passing on rate rises to savers with easy-access accounts.
Chair of the Treasury Committee, Harriet Baldwin, expressed disappointment with the slow response of High Street banks in passing on rate rises. She noted that these institutions seemed to have taken for granted that savers had grown accustomed to earning minimal returns on their savings.
Baldwin stressed that savers were currently being taken advantage of, highlighting the need for improved transparency and fair treatment of individuals relying on interest income.
The measures introduced by banks and building societies aim to provide relief to struggling mortgage holders amidst rising interest rates.
While the government has refrained from direct intervention, the increased flexibility and delayed repossession proceedings allow homeowners to navigate financial difficulties more effectively.
It is crucial for individuals facing challenges to engage in open discussions with their lenders to explore the available options and find appropriate solutions and take advice where necessary.