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The Chancellor Jeremy Hunt attended a summit with the high street bank chiefs and set out a plan to help homeowners who are worried about their mortgage rates going up after interest rates hike yesterday.
Three changes have been announced to help mortgage holders with their inflated payments.
1. Seeking Advice won’t impact credit scores
2. Homeowners can temporarily change their mortgage plans
3. 12-month period before home repossession.
The first agreement the Chancellor announced is that anyone can talk to their bank about their concerns and it “will not impact their credit scores”.
Secondly, lenders can temporarily extend the lease of someone’s mortgage or switch them to an interest only mortgage to help them cope with the rises.
However, their original deal will continue after six months.
The base rate increased 0.5 percentage points, from 4.5 percent to five percent.
This is the 13th consecutive increase to the rate since December 2021 and could be good news for savers as they may get a better return on their savings, while mortgage borrowers face larger repayments.
The average two-year fixed rate mortgage has surpassed the six percent barrier leaving those who need to remortgage or buy a home struggling to find affordable repayments.
The Bank of England’s Monetary Policy Committee predicted that inflation would hit two percent by the end of year. However, with inflation sitting at 8.7 percent, the bank has had to increase the base rate in a bid to keep this figure down.
Mr Hunt said tackling inflation was the “number one priority” for him and the Prime Minister Rishi Sunak.
He said: “To everyone who is worried about the high inflation that we have in this economy at the moment, tackling high inflation is the Prime Minister and my number one priority. We are absolutely committed to supporting the Bank of England to doing what it takes.
“We know the pressure that families are feeling. That’s why we’ve introduced big support packages, around £3,000 for the average household this year and last.
“We will do what it takes and we won’t flinch in our resolve because we know that getting rid of high inflation from our economy is the only way that we can ultimately relieve pressure on family finances and on businesses.”
However, Liberal Democrat Treasury spokesperson Sarah Olney MP said the measure was a “sticking plaster for a gushing wound”.
She added: “Even after today, bailiffs will still be knocking on people’s doors because the Government refused to help.
“Struggling families still face the looming prospect of losing their homes because the Government crashed the economy and sent mortgage bills spiraling.
“Britain is facing a mortgage crisis and we have a Chancellor who simply isn’t up to the job. Jeremy Hunt is failing on his inflation target and now failing to help families with the consequences.
“It adds insult to injury that there is still no help for renters who face unbearable payments. Jeremy Hunt is failing families and pensioners. If he is not going to take decisive action then he should step aside.”
Karen Noye, mortgage expert at Quilter, said it was “slightly positive” news for mortgage borrowers who are worried about keeping up with payments as interest rates soar.
She added: “For individuals worried about their mortgage payments, it is essential to understand the available options and take proactive steps to manage their finances effectively.”
For those who change their mortgage term temporarily to provide some breathing room, she warned: “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. While these developments provide some relief, it is essential for borrowers to be proactive in managing their finances during this challenging period.
“Seeking professional advice from qualified mortgage professionals, debt management charities, or organisations like Citizens Advice can provide valuable guidance on budgeting and financial planning. These resources can assist borrowers in assessing their financial capabilities, exploring cost-cutting measures, and identifying additional sources of income.”
Hannah Bashford director at model financial solutions said: “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.”
