Chancellor and Lenders Agree Mortgage Help

Following a meeting between Chancellor Jeremy Hunt and mortgage lenders last Friday, an agreement has been reached for mortgage lenders to be more flexible with mortgage borrowers that are struggling with higher mortgage rates.

Bank of England base rates have increased 13 times from 0.1% pa in December 2022 to 5.0% pa now.  With mortgages rising from an average 2 year fixed rate of around 2.34% pa in December 2021 to 6.55% pa today.

This means that many people coming to the end of their 2 year deals and 5 year deals could see their mortgage payments double and for some nearly treble.

Thos that have not planned for rate increases or stretched their budgets in the first place or even have got into difficulty for other reasons such as illness, redundancy or relatiobship breakdown are struggling to meet these higher payments hence the combined action between lenders and the Chancellor.

• Borrowers will be allowed to temporarily change their mortgage structure for up to 6 months e.g., moving to paying interest only rather than capital repayments and interest before returning to the correct mortgage deal.
• Mortgage payment holidays with lenders offering an additional 12 months before any repossession proceedings start if borrowers then cannot or refuse to make payments.
• Never forget, postponing payments or moving to interest only is only a remorary fix.  Action like this will only make your mortgage position worse with mortgage interest charged or the length of your mortgage extended.

Labour, as you would expect, suggest that this is not enough and they offered a 5 point plan.  The government suggest that they do not wish to intervene in free markets and we accept this.

Comment

The average mortgage rate since 1995 has been 5.62% pa, so we are only just over the average mortgage rate anyway.  Are we just getting back to normal following a period of low interest rates from 2012 to 2021?

We would not expect the government to intervene although they may still do so if things get worse.  Borrowers, lenders and brokers are all at fault.  At financialadvice.net, when arranging a mortgage we have alyways explored client affordability if rates went up by 4% pa although we accept that the cost of living squeeze added to higher mortgage payments is placing an additional burden on many borrowers.

It is perhaps also in the Government’s interests to help and prevent repossessions in particular where the government is exposed to the Help to Buy (20% government deposit scheme) and the Government mortgage indemnity guarantee scheme where lenders offer mortgages up to 95% loan to value but the government underwrites and insures the risk of the mortgage defaulting.  In those circumstances, it is the government that would end of covering the lenders losses if a property is repossessed and sold at a loss.

The government is gambling though on rates falling next year and we suggest that this is a big gamble.  We were working in the finance industry in the late 1980s and early 1990s when interest rates were over 15% resulting in repossessions in the late 80s and falls in property values in the early 90s with many in negative equity and many borrowers either trapped or forced into repossession.