Following a meeting between Chancellor Jeremy Hunt (pictured) and prominent mortgage lenders, an agreement has been reached whereby lenders grant a 12-month grace period to struggling borrowers before repossession.
Commenting on the agreement, Hunt said people should go to their banks or lenders and speak about their options without it having an impact on their credit rating.
People who change the length of their repayment term or go onto interest-only plans can reverse this decision within six months without it impacting their credit rating.
He said: “There are two groups of people that we’re particularly worried about.
“The first are people who are at real risk of losing their homes because they fall behind in their mortgage payments.
“And 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 have higher mortgage rates.”
However, there was no discussion of repossession changes in the rental market, as renters continue to struggle in the face of rising rental costs and landlords are forced to sell properties due to rising mortgage repayment costs.
Reaction:
Hannah Bashford, director at Model Financial Solutions:
“This will be welcome news for some people who are worried about affordability coming off of a low rate onto something much higher.
“However, this is only a short-term solution because people’s debt remains, and interest rates may remain high.
“In that sense, it is more of a sticking plaster, not a cure.
“Ultimately this is kicking the problem down the road and should not be seen as an easy option to increase disposable income as the debt will remain and people still need a plan to pay it off.
“Speaking to an adviser before you get into difficulty is key to long-term financial security.”
Riz Malik, founder and director at R3 Mortgages:
“This is a promising start, however, there is still a considerable amount of work that needs to be done.
“It’s essential to establish an autonomous Mortgage Task Force to vigilantly supervise the mortgage industry amid these economic fluctuations.
“It’s crucial for borrowers to gain confidence that taking these options will not hamper their prospective choices, now or in the future.”
Matthew Jackson, director at Mint FS:
“This is like using a water pistol to put out a fire. Utterly pointless.
“It will not do a thing to help, as lenders will set the criteria themselves to allow the client to move to interest-only and then amend future payments to catch up the shortfall.
And to top it all off, although it will not be registered as mortgage arrears, it will be seen by lenders in the future making it harder to obtain finance.
Which means no one will want to do it. If Carlsberg did pointless meetings….”
Luke Thompson, director at PAB Wealth Management:
“This will potentially offer some respite to borrowers.
“But, seeing as the large majority of monthly payments for those on repayment mortgages is made up of interest, especially in the early years of a mortgage, it will not give as much assistance as some may have thought it would.
“In addition, for those who have fixed their rate at a high rate now, the same issue will still be there for them in six months’ time.
“My assumption would also be that any part of the ‘repayment’ section of the mortgage would continue to accrue further interest during the period where only the interest is being serviced by the customer.”
Elliott Culley, director at Switch Mortgage Finance:
“Good to see flexibility from banks and it is always welcome for people struggling.
“However, it would seem there is only so much banks can do to help, and I wonder if this really will help clients in the long term.
“For example, if a client has locked into a rate for 2-, 3- or 5-years and asks for this help, it can only be provided for six months.
“So, although this would give some initial relief, they would have to return to their initial mortgage terms, so this strategy may just be kicking the can down the road.”
Gareth Davies, director at South Coast Mortgage Services:
“Innovation and measures to help the public are always welcome, although I can’t help but feel that today’s announcement is similar to my wife’s favourite game show. Pointless.
“Going Interest Only for six months is just papering over the ever-growing cracks.
“No doubt it will be seen by future lenders that people chose it, and the payments after the 6-months will be re-structured and likely increase even more!!”
Justin Moy, managing director at EHF Mortgages:
“This is probably the best we will get from lenders and the Government and will undoubtedly help many worried mortgage holders.
“The cost is still with the homeowner, but at least the important part is trying to afford the monthly cost at this time.
“We need clear instructions from lenders about the mortgage adviser’s role in all this.
“For example, are we going to be able to swap to interest-only or lengthen mortgage terms at the same time as rate switching?
“With around 80% of all mortgages taken through a mortgage broker, I hope we have good involvement in this, for the sake of our clients.”
Nicholas Mendes, mortgage technical manager at John Charcol:
“While its positive to see Government and lenders work together to support mortgage holders, the recent deal is a positive step forward and will provide mortgage holds a short period of relief.
“It looks like a deal which goes against the Bank of England policy against reducing inflation.
“It would have also been encouraging to see relief for landlords as they also face higher costs which is putting pressure on tenants.”
