Banks to offer more options to struggling borrowers

The latest decision by the Bank of England (BoE) caught many industry professionals by surprise. The BoE’s committee decided to increase the base rate in June from 4.5% to 5% as part of its ongoing attempts to tackle inflation. It was anticipated that the BoE would pause interest rate hikes or implement a smaller 0.25% raise this time, but the BoE was much more aggressive.

As a result, homeowners with a variable rate mortgage will see their mortgage repayments increase significantly once again, putting more pressure on scores of households. Since the rate announcement, Jeremy Hunt met with bank leaders in Downing Street to come up with ways to help struggling mortgage borrowers.

Emergency meeting in Downing Street

UK Chancellor Jeremy Hunt met with several bank CEOs in Downing Street to discuss ways to help residential mortgage borrowers during these trying times. The bank CEOs in attendance represented around 75% of the UK’s market and they came together to create a new mortgage charter and agree on ways to protect borrowers. Some of the CEOs in attendance included Matt Hammerstein (Barclays), Ian Stuart (HSBC), Mike Regnier (Santander UK) and Charlie Nunn (Lloyds Banking Group) – among many others.

Banks to offer homeowners respite

One of the ways they agreed to help homeowners is to allow them to switch to an interest-only mortgage for six months. This means homeowners would only need to pay the interest applied to their mortgage for up to six months rather than the interest and principal loan repayments. This is also known as a mortgage holiday, which was already available to lots of borrowers for up to three months. This decision will enable all residential mortgage borrowers to access a longer mortgage holiday without it affecting their credit score.

Another option that came from discussions is to allow homeowners to reduce their monthly repayments but extend their loan repayment term, meaning they will pay less but for longer to repay the full loan. This option comes with an option for homeowners to change their mind within the first six months and revert to their initial loan agreement.

The final agreement to benefit homeowners is a new promise that lenders will not try to repossess a property for at least 12 months after defaulting on mortgage repayments. This means homeowners won’t have their homes seized for at least one year if they cannot keep up.

Will interest rates increase again?

It’s certainly possible with many industry experts predicting that the BoE will increase the base rate to around 6% by the first months of 2024. This will be unwelcome news to homeowners with a mortgage, especially the 2.4 million households currently on a cheaper fixed-rate deal that is due to expire within the next 18 months. If this sounds familiar, it might be a good time to speak with a trusted mortgage broker today. 

July 2023