New Mortgage Charter rules kick in for struggling borrowers – how they affect you

Today, a package of government measures came into effect to help troubled homeowners facing rising mortgage rates.

Lenders, including NatWest, Nationwide, Barclays, will now allow home loan customers to switch to interest-only payments or extend their loan term to six months without impacting their credit score.

For example, someone with a term of 20 years can temporarily switch to a term of 40 years and thus reduce his monthly costs.

Chancellor Jeremy Hunt said there are ‘no questions asked’ of borrowers willing to take this step as they face the fallout from high mortgage rates.

Chancellor Jeremy Hunt announced measures following a meeting with mortgage lenders this morning

But borrowers should be aware that shifting their mortgage to other terms could cost them tens of thousands of pounds more in the long run.

Interest-only mortgages are cheaper because you only have to make monthly interest payments, but you don’t have to pay off any debt.

By switching to an interest-only mortgage, even for a short period of time, the borrower has less time to pay back the mortgage balance once he switches again.

As a result, when switching back to a repayment loan, more will eventually have to be repaid each month to make up for the missed time.

The alternative is that they end their mortgage period with debts yet to be settled.

Similarly, extending the term of a mortgage — the term of the loan — can reduce monthly payments, but the debt will earn more interest over time.

Paying back a £200,000 mortgage at 5 per cent over 35 years instead of 25 years means a total interest of £224,000 instead of £151,000.

> Mortgage calculator: Compare the costs of amortization and amortization

The Mortgage Charter, introduced last month, also protects homeowners from foreclosures for 12 months starting June 26.

This means that lenders must grant clients who are at risk of having their home repossessed for 12 months, from the time of the first missed payment.

However, there are several loopholes in the scheme.

The new rules only apply to 75 percent of mortgage lenders, and landlords with buy-to-let mortgages are excluded.

Lenders that have signed the agreement also include HSBC, Santander, Lloyds Banking Group (including Halifax, Bank of Scotland and Lloyds Bank) and Virgin Money.

This breather will come as a relief to homeowners who fear their properties will be repossessed if they fall behind on their mortgage payments.

During the worst of the Covid-19 pandemic, lenders were unable to repossess homes until after the crisis.

Rates have risen sharply in recent weeks, putting more borrowers at risk of a mortgage shock

Rates have risen sharply in recent weeks, putting more borrowers at risk of a mortgage shock

Why was the Mortgage Charter launched?

The Mortgage Charter package was introduced after the Chancellor met with lenders to find ways to help homeowners with the rising cost of their home loans.

The options available to borrowers, such as switching to interest-only or extending terms, already exist in many cases, but this can damage their credit history.

The new rules protect people from damage to their finances for up to six years and should keep payment arrears low as bills mount.

Hunt said, “There are two groups of people that we are particularly concerned about.

‘The first are people who are at real risk of losing their home because they are behind on their mortgage payments.

‘The second group are people who have to change their mortgage because their fixed interest rate is about to expire, and who are concerned about the consequences of a higher mortgage interest rate for their family finances.’

Also included in the charter is the right of property owners struggling with payments to talk to their lender about their options without judgment and if one comes to the end of a flat rate they can renew a deal up to six months in advance. ‘fix’. .

All of these options can be done without hurting a borrower’s credit score, Hunt said.

While welcome, these last two measures were generally available to customers prior to the Charter’s implementation.

When the charter was first announced, Hunt doubled down on his earlier stance that the government will not give bailouts to struggling homeowners.

According to MoneyFacts, the average two-year fixed mortgage rate for borrowers is now 6.63 percent. The five-year average is 6.13 percent.

> Why are mortgage rates rising so fast?

What to do if you need a mortgage

Borrowers who need to find a mortgage because their current fixed-rate contract is about to expire, or because they have agreed on a home purchase, should explore their options as soon as possible.

This is Money’s best mortgage calculator powered by L&C that can show you deals that match your mortgage and property value

What if I have to borrow again?

Borrowers should compare rates and speak with a mortgage broker and be prepared to trade to secure a rate.

Anyone with a fixed-rate deal expiring in the next six to nine months should research how much it would cost them to re-mortgage now — and consider getting a new deal.

Most mortgage agreements allow fees to be added to the loan and are not charged until it is closed. By doing this, borrowers can secure a rate without paying expensive arrangement fees.

What if I buy a house?

Those with an agreed home purchase should also aim to secure rates as soon as possible so they know exactly what their monthly payments will be.

Homebuyers should be careful not to overextend themselves and be prepared for the possibility that house prices could fall from their current highs, due to higher mortgage rates limiting people’s borrowing capacity.

Compare mortgage payments

The best way to compare mortgage rates and find the right deal for you is to talk to a good real estate agent.

You can use our best mortgage interest calculator to display deals that match your home value, mortgage size, term and fixed interest needs.

However, bear in mind that rates can change quickly, so if you need a mortgage it’s advice to compare rates and then speak to an estate agent as soon as possible so they can help you find the right one mortgage for you.

> Check out the best fixed rate mortgages you can apply for

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