A new scheme for those worried about rising mortgage payments has been introduced by the government. We look at what it covers – and explain why our message to borrowers is always to seek advice.
The government has launched a new Mortgage Charter scheme with lenders to help people worried about rising mortgage payments. The scheme comes after the base rate increased from 4.5% to 5% on 22 June, which marked the thirteenth consecutive rise in 18 months. The rate stood at just 0.1% in December 2021, but rate increases have been steady and consistent since then.
Speaking to a lender
Under the new Mortgage Charter Scheme, lenders have agreed that those worried about mortgage payments can speak to them about their concerns without worrying about their credit file being impacted.
It also means that borrowers who have made all of their payments on time can move to a new mortgage deal at the end of a fixed-rate term without another affordability check being carried out.
From 10 July, anyone approaching the end of a fixed-rate term will be able to secure a new mortgage deal six months ahead. Some lenders have already offered this option, but not all of them.
Tailored support
The scheme will also offer tailored support for anyone struggling to pay their mortgage, such as extending the term of the loan if appropriate or switching to an interest-only deal where possible. Other options to help struggling borrowers could include a temporary payment deferral.
A significant number of lenders have reportedly signed up to the scheme, including Barclays, Virgin Money, TSB, NatWest, Lloyds, Nationwide, HSBC, Santander and various building societies.
If a borrower misses a payment, they won’t be forced to leave their home without their consent less than a year from their first missed payment.
Seek mortgage advice
However, if you’re concerned about rising mortgage payments, it’s essential to seek advice straight away. ‘I would suggest you speak to a broker,’ says MB Associates’ Sales Manager, Phil Leivesley. ‘I’ve spoken to many clients recently who are nearing the end of a current fixed rate, and they might be coming off a rate of about 2% and onto a rate that is significantly higher. There are a couple of potential solutions to mitigate that increase in monthly cost. One is to extend the term of the mortgage. So if somebody has 20 years remaining on their mortgage, in some cases, we’ve been able to extend it to 30. Or even switch to an interest-only mortgage where you stop paying off the capital (and just pay off the interest each month) for a period of time.
Phil adds: ‘I think it’s really important to say that there are negative outcomes to both of those solutions and mainly that you’d be paying more interest for longer. Also, those options might not be available to you if you’re already borrowing right up until retirement age.
Dealing with mortgage concerns
‘If you have concerns, and you’re worried about what is coming down the track, do reach out, speak to a specialist mortgage broker and have a conversation with them,’ says Phil. ‘They will be able to look at your individual circumstances and let you know what is appropriate or what’s possible and then formulate a plan to help you get through the next 12 to 24 months.’
We’re here to help if you need advice.