Mortgage lenders and Chancellor Jeremy Hunt have agreed that people should be given a 12-month break before repossession proceedings start amid soaring interest rates.
After the rise of the base rate to 5%, Mr Hunt met with leaders of financial institutions including Lloyds, NatWest, Barclays and Virgin Money.
They agreed that the repossession break should be introduced – similar to the one implemented during COVID.
Mr Hunt spoke after the Downing Street summit about an option for people to go to their banks or lenders and speak about their options, if they are struggling with repayments, without it having an impact on their credit rating – although this had been mentioned as early as March this year by the Financial Conduct Authority (FCA).
He said that people who change the length of their repayment term or go on to interest-only plans can reverse their decision within six months without it impacting their credit rating.
But there was no announcement of support for people who rent, who are facing landlords hiking prices or selling properties from under them due to rising mortgage costs.
And Labour warned that without making the plan mandatory for all banks – the current agreement covers 75% of the market – around two million homeowners could miss out on support.
The chancellor said: “There are two groups of people that we’re particularly worried about.
“The first are people who are at real risk of losing their homes because they fall behind in their mortgage payments.
“And the second are people who are having to change their mortgage because their fixed rate comes to an end and they’re worried about the impact on their family finance since the higher mortgage rates.”
Chancellor’s mortgage plan might mitigate against chaos – but it will not prevent pain
There was never going to be an announcement on Friday about direct “bailout” style funding for those struggling with their mortgages.
Both the government and Labour agree that would risk fuelling inflation further.
So what we have instead is a beefing up of existing tools available to lenders and a reintroduction of some of the easements seen during the pandemic.
The difficulty may be that the sheer depth and length of this mortgage squeeze will likely still leave many wanting more from both the banks and the government.
Similar repossession breaks were introduced during the pandemic.
An announcement several hours later included data from the FCA, showing 0.86% of residential mortgages were in arrears in the first quarter of 2023 compared with 3.32% in 2009 after the financial crash.
It added that the proportion of disposable income spent on mortgage payments is 5.4%, compared with 10% in the 1990s.
Martin Lewis, the founder of MoneySavingExpert.com, said; “I met the chancellor on Wednesday and reiterated that the minimum we needed was to ensure that when people asked for help from lenders, they knew that if things changed, it wouldn’t be detrimental to their financial situation and their credit scores would be protected as much as possible.
“I’m pleased to see it looks like the chancellor has listened and those measures are going to be put in practice by the banks. We need to make sure everybody knows their rights if they are in trouble with their mortgage, so they can feel comfortable speaking with their lender and understand the measures that they can request for help.”
Banking leaders also offered their support for the measures, with HSBC chief executive officer Ian Stuart saying: “It’s important that customers feel comfortable contacting us if they feel they are getting into financial difficulty because whilst every customer’s situation is different we have a range of options that we can use to help them find their way through.”
But Labour leader Sir Keir Starmer said the public were looking for “actions, not words”, when it came to their mortgages.
He said there are “many mortgage holders, many families, across the country who are now even more worried about paying their mortgage”.
He said: “They know that the government’s been about for 13 years, they know the government crashed the economy last year.
“What they want, I think, is a much stronger sense that the government is gripping this; action, not words.”
Shadow chancellor Rachel Reeves also attacked the “government’s failure to make this set of measures mandatory”, and said there was “a big lack of clarity and certainty about the timelines”.
She said the Conservatives should “take responsibility” and adopt Labour’s plan, announced on Thursday, that would see all banks made to allow borrowers to switch to interest-only mortgage payments and lengthen the term of their mortgage period.
But a Treasury spokesperson said: “Today’s measures will offer comfort to those who are anxious about high interest rates and support for those who do get into difficulty.
“The chancellor is clear that he expects smaller lenders to sign up and to offer their customers similar flexibilities, and thinks it is the right thing to do – and we are aware several will be considering over the coming weeks.”
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