It is easy to forget that UK base rates were 0.1% between March 2020 and December 2021, allowing many people to refinance their mortgages at historic low rates. Fast forward to August 2023, and the base rate now stands at 5.25%, with mortgage rates having jumped dramatically since December 2021. In conjunction with the cost of living crisis, high inflation and a subdued economy, many people have been struggling to afford their monthly mortgage payments.

This prompted the government, Financial Conduct Authority and the UK’s principal mortgage lenders to meet in June 2023. They agreed to a Mortgage Charter to assist those struggling with their mortgage payments.

Details of the Mortgage Charter

The charter contains an array of commitments which formalise assistance for those having difficulty covering mortgage payments. These commitments include:

• Homeowners can now approach their mortgage lender about potential help without any impact on their credit rating
• Lenders are now obliged to contact mortgage holders before their terms expires with information to help them plan ahead
• Those up-to-date with their mortgage payments should be able to switch to a new arrangement without an affordability test
• Unless there are exceptional circumstances, borrowers who fall behind with their payments will have one year’s grace before potentially being asked to leave their home
• Mortgage holders coming to the end of their fixed-rate term can lock into a new rate early, up to 6 months before the deal finishes

Part of the Mortgage Charter involves a degree of tailored support such as:-

• The option to extend your mortgage and reduce payments for six months
• Switch to an interest-only arrangement for six months
• Potential repayment deferral or reduction in interest/repayment elements

It is essential to clarify that many of the UK’s major mortgage companies already offered a number of these options through an informal arrangement. While the Mortgage Charter is officially “voluntary”, it is a public commitment by the UK’s principal mortgage lenders.

A publicity campaign to inform mortgage holders

Led by the trade body UK Finance, there will be a highly visible publicity campaign concerning the commitments as part of the Mortgage Charter. The idea is to make customers fully aware of the assistance to hand and the critical changes made compared to historical support.

Taking a proactive approach

Official figures show that more than 2 million fixed-rate mortgages are due for refinancing before the end of 2024. Many will face new fixed-rate terms three or four times their previous rate. While the Bank of England was recently at pains to confirm that the base rate may be approaching the peak of the current cycle, rates are unlikely to fall significantly over the next two years.

In tandem with the welcome commitments as part of the Mortgage Charter, it is vital to take advice from your mortgage adviser as soon as possible. As mentioned in one of our recent articles, there are several options for those struggling with mortgage payments in the short to medium term. A proactive approach may allow you to use investments or savings to pay down part of your mortgage capital, thereby reducing your interest charge.

Summary

Even though official data shows that the number of people struggling with mortgage payments or facing eviction is significantly less than figures from the 2008 financial crisis, times are challenging. The emergence of the Mortgage Charter provides a number of options for those struggling in the short to medium-term and requiring advice. 

When considering any changes to your mortgage arrangement, it is essential to seek professional advice as soon as possible. There may be several options to consider in the short, medium and longer term.