What is the new Mortgage Charter and what help does it offer?
With the cost of living soaring beyond expectation, a lot of people are feeling the pinch. Just when they thought they’d already tightened their belts to the final notch, the mortgage renewal letter pops through the letterbox, and they discover that their mortgage payments are going to be increasing too – often by several hundred pounds, sometimes thousands.
For some, although the increase isn’t exactly cause for celebration, their new mortgage payments are still financially viable. But what about those who simply cannot find any room in their monthly budget to cover the increase?
The good news is that mortgage lenders are taking this issue seriously, and met with the government last Friday to discuss ways to ease the difficulty that some people are facing as a result of high interest rates.
Off the back of this, the government has announced a new Mortgage Charter. The charter basically sets out a list of methods that mortgage lenders can use to provide support to those who need help with managing their mortgage payments. Please note that this charter only applies to residential mortgages, and not Buy to Let mortgages.
To be clear, lenders have always had a degree of discretion when it comes to making amendments to a mortgage due to financial difficulties, however the key difference is that under the new Mortgage Charter, any temporary adjustments made to the mortgage will not have a negative impact on the person’s credit file. Which has not always been the case.
All mortgage lenders have agreed:
- Anyone worried about their mortgage repayments can contact their lender for help and guidance, without any impact on their credit file.
- Support for customers who are up-to-date with payments to switch to a new mortgage deal at the end of their existing fixed rate deal without another affordability check.
- Lenders will provide well-timed information to help customers plan ahead should their current rate be due to end.
- Lenders will offer tailored support for anyone struggling and deploy highly trained staff to help customers. This could mean extending their term to reduce their payments, offering a switch to interest only payments, but also a range of other options like a temporary payment deferral or part interest-part repayment. The right option will depend on the customer’s circumstances.
Signatories to the new Mortgage Charter have agreed:
- From 26th June 2023, a borrower will not be forced to leave their home without their consent unless in exceptional circumstances, less than a year from their first missed payment.
- With effect from 10th July customers approaching the end of a fixed rate deal will have the chance to lock in a deal up to six months ahead. They will also be able to manage their new deal and request a better like for like deal with their lender right up until their new deal starts, if one is available.
- A new deal between lenders, the FCA and the government permitting customers who are up to date with their payments to:
- Switch to interest-only payments for six months or
- extend their mortgage term to reduce their monthly payments and give customers the option to revert to their original term within 6 months by contacting their lender
One thing to bear in mind is that these options can be taken by customers who are up to date with their payments without a new affordability check or affecting their credit score. Customers who are currently in arrears on their mortgage should continue to work with their lender for the support that they need.
So what next? If your mortgage deal is coming up for renewal, it’s key to act as soon as you can. Speak with a mortgage broker to understand your options, and if you’re concerned about your new payments, it’s crucial to speak with your existing lender as soon as you can – to alleviate your own worries, as well as to ensure that you can get something in place before your current deal ends, or any payments are missed.
If you want to check if your lender has signed up to the Mortgage Charter, a full list can be found here.
Helen Peel – 30th June 2023