Major mortgage rule shake up from TODAY – how it affects you
A MAJOR mortgage rule shake up means millions of borrowers can apply for breathing space on their loans from today.
The new rule lets you temporarily switch your mortgage to interest-only, or extend your term to bring monthly payments down.
You won’t have to submit any further income details or share monthly spending commitments – you can just ask your lender to make the switch.
And it won’t affect your credit score for six months if you choose to take up the offer.
The shake up comes after an emergency meeting in Downing Street where the major high street banks and financial regulators agreed to loosen the rules to help struggling borrowers.
Since then, 30 lenders have signed up to the new mortgage charter to offer struggling households the support.
The charter is intended to help millions of homeowners who are facing a huge jump in monthly mortgage repayments because of rising interest rates.
What’s changing?
Starting today, lenders can now change the term of your mortgage deal temporarily to bring your monthly payments down for up to six months.
You can also switch to interest-only repayments for six months, which can also reduce your monthly bill.
You won’t have to share any more financial information about your current circumstances for lenders to agree to the change.
It also won’t affect your credit score.
But it’s worth bearing in mind that although this could help in the short term by lowering monthly repayments, it could mean you pay back more in the long term.
If anyone using the temporary measures decides to go back to their original plan within six months they are free to do so.
A number of other measures also come into effect today.
Customers approaching the end of a fixed-rate deal have the chance to lock in a deal up to six months ahead.
Some banks previously offered this before the change, and others for a shorter time.
Now borrowers can be sure that their bank will offer this time-frame automatically.
Homeowners can request a better deal with their lender right up until their new term starts, if one is available, though, meaning they won’t miss out if rates later go down.
Any homeowner can also approach their lender for advice on repayments without impacting their credit score.
To take advantage of any of these changes, homeowners should speak to their lender.
You’ll need to be up to date with your repayments to be eligible, as the help does not apply to those who have already fallen behind on payments.
Why do we need a mortgage charter?
The Bank of England has raised the base rate 13 times since December 2021 from 0.1% to 5% as it battles to bring inflation under control.
It has sent mortgage rates rocketing, leaving borrowers who fixed less than two years ago with no option but to remortgage to a much more expensive deal.
Standard variable rates (SVRs) which people revert to automatically after a fix ends, and tracker mortgage rates, which are tied directly to the base rate are also far higher.
Just a week ago interest rates for a five-year fix soared over 6% for the first time this year.
Two-year fixed deals hit 6.01% for the first time this year a fortnight earlier.
Today’s new measures are designed to provide breathing space for struggling homeowners.
You won’t lose your home
The rules around home repossessions have also changed so that a borrower will not be forced to leave their home without their consent within a year of first missing a mortgage payment.
If you’re already behind on your mortgage, unfortunately the new rules don’t cover you.
But Paul Broadhead, head of mortgages and housing at the Building Societies Association, said you should still talk to your lender as they may be able to offer you other forms of help.
He said: “Lenders have a range of tools that they can use to support those in arrears, depending on a borrower’s individual circumstances.
“These may include moving a mortgage onto a longer term, a temporary switch to interest only, or offering a short-term payment concession, for example.
“There is support available for all mortgage customers from all lenders outside of the new measures announced in the charter.”
What does being “in arrears” mean?
If you have mortgage payments overdue then you are in arrears.
If you miss a payment your lender will contact you within 15 days to tell you that the payment is due.
Don’t wait for this letter to arrive to do something about it.
You need to act fast as soon as you can to get the best outcome and secure your mortgage.
What other mortgage help is available?
As soon as you think you will have a problem with your monthly mortgage repayment – whether you can’t pay anything, can’t pay all of your monthly payment or can’t pay it on time – get in touch with your lender straight away.
They have certain schemes in place to help you if you’re struggling.
You can ask your lender about the breathing space scheme if you’re finding payments unaffordable.
Under the breathing space scheme, none of your debts will earn interest and no fees will be added for 60 days.
You’ll be protected from debt collectors and bailiffs.
You may also be able to apply for a payment holiday – this is when you don’t need to pay anything.
But interest and charges may continue to be added, and missed payments will need to be made up in the future.
Every company has a different policy so you’ll need to get in touch to find out what support is available to you.
Support for mortgage interest or SMI helps those on Universal Credit – and other benefits – by giving them a low-interest loan.
The help goes towards mortgage payments or towards loans taken out to help repair any damage to the home.
SMI is a loan that you will need to repay with interest when you sell your home.
You’ll get help paying the interest on up to £200,000 of your loan or mortgage.
But you’ll only get up to £100,000 if you’re getting Pension Credit.
The interest added to the loan can go up or down, but the rate will not change more than twice a year – the current rate is 3.03%.
Contact the office that pays your benefit to find out if you could get an SMI loan.
Don’t deal with debt alone
There are several charities and services that offer free help and advice if you’re worried about money.
It’s always best to contact one of these services before thinking about debt consolidation or using a debt adviser who will likely charge you.
Citizens Advice is a free and impartial service which will help you come up with a plan to get on top of your debt including which payments to prioritise and how to reduce your living costs.
The organisation’s website has a useful page with advice on many aspects of debt, but you can contact them directly by phone, online or in person for more personalised help.
StepChange is another free advice service offering support and guidance online or over the phone, and it’s completely confidential.
You’ll need to provide details of your debts, income and household spending to get a clear picture of where your money goes.
Where possible, their advisers will help you come up with a plan to repay all your debts but in a way that you can afford.
National Debtline is a charity run offering free and confidential advice to people in England, Wales and Scotland.
You can contact them online or over the phone on 0808 808 4000, between 9am and 8pm Monday to Friday, and 9.30am to 1pm on Saturdays.
An adviser will help you work out what you can afford to repay, and help you decide on the best solution for your debt.
Do you have a money problem that needs sorting? Get in touch by emailing money-sm@news.co.uk.
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