June 23, 2023 –Banks and building societies will offer more flexibility to struggling mortgage-holders as rates soar.
The move comes after bank bosses met the chancellor, Jeremy Hunt, in Downing Street on Friday.
Borrowers will be able to make a temporary change to their mortgage terms, then will be able to return to their original deal within six months.
This would allow some to have lower repayments for a short time, by just paying the interest on the home loan.
Mr Hunt said the six-month flexibility on switching terms would not affect credit scores as it may have done previously.
However, it will still be the case that missing payments or taking a total break on payments, known as a mortgage holiday, will still harm someone’s ability to borrow in the future.
Lenders also agreed to a 12-month delay before taking repossession proceedings against borrowers unable, or unwilling, to pay over the long term.
Bank chief executives described it as a “productive” meeting as they left Downing Street.
Earlier this week, the Labour Party issued a five point plan which it said would ease what it called “the Tory mortgage penalty” and help limit repossessions.
Shadow chancellor Rachel Reeves called the chancellor’s latest statement “a weak response”.
“Questions remain on how voluntary these measures are,” she said. “The government must offer clarity and confidence to homeowners by putting in place requirements now to reassure households.”
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The meeting between lenders and Mr Hunt comes after Thursday’s shock decision by the Bank of England to raise interest rates to 5%, up from 4.5%, as it tries to tackle inflation.
Millions of UK households will see their budgets squeezed as a result.
The post-meeting announcement was never going to lead to direct government intervention to help those who are struggling, but it will kick-start a campaign to make them aware of their options.
The idea is it encourages people to talk to their lender if they are in trouble, without feeling there are financial barriers in place to do so.
Mr Hunt said: “These measures should offer comfort to those who are anxious about high interest rates and support for those who do get into difficulty.”