27 June 2023 – After the Bank of England raised the base rate for the 13th consecutive time, the Chancellor met with lenders to agree support measures for borrowers.
When the Office for National Statistics published the latest inflation figures it was widely expected that inflation will have fallen. But it remained at 8.7%, which sent shock waves through the financial market.
As a consequence, the Bank of England (BoE) raised the base rate by 0.5% to 5%. With mortgage rates already on the rise before the most recent rate rise by the BoE, many were calling on the Government to help struggling borrowers.
Both Rishi Sunak and Jeremy Hunt have ruled out any energy-bill-support-style support measures. However, the Chancellor met with lenders for an urgent meeting.
Support Measures Lenders Agreed To
The Chancellor, Jeremy Hunt, invited lenders to an urgent mortgage lenders summit to discuss what they could do to help struggling borrowers amid concerns about rising mortgage rates.
Taking part in the summit were the main banks and building societies, who together cover 75% of the market, and the Finacial Conduct Authority (FCA). Mr Hunt announced that lenders had agreed to be more flexible if borrowers struggle with repayments.
The agreed mortgage charter aims at giving limited support to residential mortgage customers and includes three important measures to avoid repossessions.
The first is that everyone can talk to their bank or lender without it having an impact on their credit score.
The second measure lenders have agreed to is to allow borrowers to change to interest only or extend the term of the mortgage. If households want to go back to their original mortgage deal within six months, there will be no impact on their credit score. This is set to take effect within two weeks.
The third measure deals with the extreme situation when borrowers are at risk of losing their home. Repossessions are a last resort and there will be at least a 12-month period after the first missed payment before a repossession without consent takes place.
But the charter also says that customers who’s fixed mortgage deal is due to finish, can lock in a new deal up to six months before their deal runs out. And if a better deal becomes available within this time, they are able to apply for it up until their new term starts.
Customers on a fixed-rate mortgage who are up-to-date with their payments will get support to switch to a new deal when their existing deal ends without a new affordability check.
Lenders have also promised to give their customers well-timed information if their current fixed-term mortgage deal is due to run out. Finally, lenders will offer tailored support to any struggling customer.
The announcement of the support measures was welcomed by Martin Lewis.
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.
Martin Lewis, Founder of Money Saving Expert
However, the charter only covers residential mortgages and doesn’t include buy-to-let mortgages, leaving many landlords without support.
Calls On Government To Bring Back Help To Buy Scheme
With mortgage rates on the rise, rents soaring and inflation still stubbornly high, the dream of owning a home becomes unattainable for many would-be first-time buyers.
House prices have also risen sharply during the past two to three years, which means first-time buyers need a bigger deposit than before the pandemic.
This has prompted calls to reintroduce the Help To Buy scheme to give young people the opportunity to get onto the property ladder. Otherwise, a whole generation will be unable to buy a home.
The scheme was first introduced back in 2013 but was closed for new applicants last year leaving first-time buyers without any support to get on the housing ladder.
Paul Sams from the law firm Dutton Gregory questioned why the Government scrapped the scheme in the first place and calls for its return.
First-time buyers are finding it much harder now, so there is a danger of a generation of young people being denied accessible home buying opportunities. Meanwhile, the demand for rental properties far outweighs supply. Prior to a decade of Help to Buy, there was Home Buy Direct and First Buy, so how is it right that there is no longer a government initiative to make home ownership a possibility for those without a substantial deposit?
Paul Sams, Partner and Head of Property at Dutton Gregory
Whether the Government will introduce a new scheme to help first-time buyers remains to be seen. For now, the support measures agreed by lenders should help homeowners deal with increased mortgage rates and prevent masses of repossessions.
