"The last thing that they want to do to repossess a home but in that extreme situation, they’ve agreed there will be a minimum 12 month period before there’s a repossession without consent."
Chancellor Jeremy Hunt met with mortgage lenders today to discuss potential measures for borrowers who are struggling to pay their mortgages.
In the meeting, lenders agreed to offer a 12-month grace period before repossession proceedings begin.
Speaking today, Hunt confirmed: "The last thing that they want to do to repossess a home but in that extreme situation, they’ve agreed there will be a minimum 12 month period before there’s a repossession without consent."
Lenders at the meeting included Lloyds Banking Group, NatWest, Barclays and Virgin Money.
The chancellor also confirmed that struggling mortgage holders would be able to switch to an interest-only mortgage or extend the term of their mortgage with "no questions asked".
He said: "The second is that if you are anxious about the impact on your family finances, and you change your mortgage to interest-only or you extend the term of your mortgage, and you want to go back to your original mortgage deal within six months, you can do so, no questions asked, no impact on your credit score, and it’s going to give people a lot of comfort and stop people worrying about having conversations with their banks when they are worried about their financial situation."
Hunt also confirmed that all borrowers can talk to their bank or their mortgage lender "and it will have no impact whatsoever on their credit score", adding: "That’s really important. A lot of people worry about that."
Earlier this week, Hunt ruled out an official mortgage relief scheme, saying an introduction could further push up inflation, but said he would meet with lenders to see what help can be offered to struggling borrowers.
Yesterday, the Bank of England's Monetary Policy Committee increased Bank Rate by 0.5% to 5.00% - the 13th consecutive rise - after inflation remained at a higher-than-expected 8.7%.
Karen Noye, mortgage expert at Quilter, commented: "Today’s talks between bank executives and Chancellor Jeremy Hunt have finally yielded some slightly positive news for mortgage borrowers concerned about how they are going keep up with payments as interest rates continue to soar.
"One significant development arising from the talks is the temporary change in mortgage terms offered by lenders. Borrowers will now have the opportunity to make adjustments to their mortgage terms for a short period, such as switching to interest-only payments. This change can provide immediate relief by reducing monthly repayments. Importantly, borrowers can later return to their original mortgage deal within six months, ensuring continuity and stability while not impacting their credit score. Hopefully this can give people a bit of breathing room to find additional streams of income or get their finances in order. It also provides reassurance to borrowers who may be concerned about the long-term consequences of making changes to their mortgage arrangements. However, it is crucial to remain vigilant and understand that missing payments or opting for a complete payment break, commonly known as a mortgage holiday, may still affect future borrowing opportunities.
"Furthermore, lenders have agreed to a significant 12-month delay in initiating repossession proceedings against borrowers who are unable or unwilling to meet long-term payment obligations. This extension offers some slack for struggling homeowners, allowing them additional time to stabilise their financial situations. It is important for borrowers to engage with their lenders and explore options for repayment plans, mortgage holidays, or extensions to mortgage terms. Open and honest communication with lenders can pave the way for finding suitable solutions that prevent further financial distress.
"However, the government has dismissed suggestions of direct financial support, as it aims to support the Bank of England's battle against inflation. As interest rates rise, it is crucial for borrowers to evaluate their mortgage deals and consider taking action before fixed-rate agreements expire. Engaging with mortgage brokers or lenders well in advance of the expiration date can help secure favourable deals and mitigate the impact of rising rates."
Matthew Jackson, director at Mint FS, said: "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..."
Hannah Bashford, director at Model Financial Solutions, commented: "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."
Justin Moy, managing director at EHF Mortgages, added: "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."
