Banks and building societies agree to offer more flexibility to UK mortgage holders

Mortgage lenders have agreed to offer more flexibility to customers struggling with repayments as interest rates soar. 

The call follows an emergency mortgage summit called by the chancellor, Jeremy Hunt, in Downing Street to address how banks and building societies can ease the pressure of rising interest rates.

Here, we break down exactly what lenders are promising to offer to help ease the financial pressure caused by today’s record-high interest rates.

Some articles on the blog contain affiliate links, which provide a small commission to help fund the blog. However, they won’t affect the price you pay or the blog’s independence. Read more here.

What help has been announced? 

Following growing concerns about mortgage affordability after the Bank of England’s (BoE) decision to increase the base rate to 5% – the thirteenth consecutive rise – UK mortgage providers have promised to help borrowers. 

Under the new arrangements borrowers will be offered the option to reduce their repayments temporarily using one of the following measures:

• switching their mortgage to interest-only for up to six months

• extending their mortgage term (with the option to switch back within 6 months)

• Locking into a fixed-rate deal up to six months in advance of their current deal ending (with the option to request a better like for like deal if one becomes available before it starts)

• speaking with your lender about possible mortgage adjustments without judgment or negative consequences. 

These options are available for customers who are up to date with their repayments. You’ll be able to access this mortgage support by contacting your lender directly and there is a no questions asked policy when you make an enquiry. And, won’t have to undergo new affordability assessments or credit report checks. 

If you are currently in arrears, you’ll still have the option to work with your mortgage provider to work out the best way of getting your repayments back on track. 

Lenders have also agreed to wait 12 months before starting proceedings to repossess the homes of customers who are not able to keep up with repayments over the long term. 

How effective is the Charter?

It’s worth mentioning that the measures agreed to in the Charter were already available through many lenders but weren’t widely known. So this agreement essentially, helps to formalise the options available to struggling customers.

Friend of the site Sara Williams, who runs the Debt Camel blog pointed out that this will “get more people to know that there is help on offer” so that they can take action and get in touch with their lender for support.

As it stands, the government has ruled out any financial support packages for mortgage holders. Chancellor, Jeremy Hunt, said in Parliament that there wouldn’t be an investment in any monetary relief schemes because they “would make inflation worse, not better.”

Who could this help?

In the short term, it’s to help those who are already or will soon be impacted by rising interest rates. And that’s a lot of people. Millions of borrowers are likely to see their mortgage repayments increase as a result of rates reaching their highest level in 14 years. 

Around 1.5 million of these are those on a variable rate mortgage and 850,000 on a tracker mortgage. Those rates generally increase very soon after each base rate hike.

There are another 2 million on a fixed-rate mortgage that’s due to end soon. They’ll likely see mortgage repayments increase significantly too when they have to remortgage.

Of course, there are plenty more people with mortgage fixes that have a while to go – but if there are further increases (which are expected to stay at these levels for a while), even more people will face a significant rise in how much they pay every month.

Which lenders have agreed to offer more help?

The following mortgage lenders (making up most of the market) have signed up to the Charter, agreeing to offer more flexibility to borrowers: 

• Barclays
• Bath Building Society
• Buckinghamshire Building Society
• Coventry Building Society
• Co-Op Bank
• Darlington Building Society
• Ecology Building Society
• Family Building Society
• Furness Building Society
• Glasgow Credit Union
• Hinkley & Rugby Building Society
• HSBC, including First Direct
• Leeds Building Society
• Leek Building Society
• Lloyds, including Halifax and Scottish Widows
• Loughborough Building Society
• Melton Mowbray Building Society
• Nationwide Building Society
• Natwest, including RBS and Ulster Bank
• Newcastle Building Society
• Nottingham Building Society
• Principality Building Society
• Progressive Building Society
• Santander
• Scottish Building Society
• Skipton Building Society
• Suffolk Building Society
• The Vernon Building Society
• TSB
• Virgin Money, including Clydesdale Bank and Yorkshire Bank
• West Bromwich Building Society
• Yorkshire Building Society

How much could my mortgage go up by?

On average monthly mortgage repayments are predicted to rise by around 50% according to new data from the National Institute of Economic and Social Research (NIESR). 

If you’re on a fixed-rate mortgage deal, your repayments could rise from an average of £700 to £1,000 a month. Around 2 million UK customers are likely to be affected by this once their deal ends from July onwards this year. 

Those on a variable-rate mortgage could see their repayments rise from £450 to £700. About 1.5 million households are on a variable deal and will see their repayments go up too. 

Of course, the exact amount mortgages will go up by will vary not just by how much you’ve borrowed and the duration of your mortgage, but also from borrower to borrower. Many providers such as Lloyds and Barclays offer free online mortgage calculators that can help give you an estimate.  

Why are interest rates rising?

Interest rates have really crept up on us over the last 13 months! But that’s largely down to the BoE’s strategy for managing inflation. And typically we see the BoE increase interest rates to help combat high living costs. 

The government’s target for inflation is 2% and although May’s inflation rate remained unchanged from the previous month at 8.7%, it’s still well above the BoE’s target. 

The idea is that if interest rates are higher, it forces people with mortgages to spend less money elsewhere, which alongside people choosing to save in higher paying savings accounts, will in turn reduce demand and bring about lower prices, and therefore lower inflation.

The latest forecasts following the BoE’s announcement predict that interest rates could peak at 6% by the end of the year before falling again. 

For more details on the latest interest rate rise and what it means for you, check out our latest video below.