Is the new Mortgage Charter a help or a hindrance?
On 23 June 2023 and following a meeting with the UK’s principal mortgage lenders and the Financial Conduct Authority (FCA), the Chancellor announced a new Mortgage Charter.
What is the Mortgage Charter?
Many mortgage lenders have agreed a set of commitments outlined in the Charter to help regulated residential mortgage borrowers who are worried about higher rates; this includes switching to interest-only or having their existing mortgage term extended as well as other options. The Charter builds on the existing work of lenders to ensure those who get into difficulty receive the support they need. The additional commitment from signatories should provide customers with clarity on how they can expect to be treated in the future.
What have these mortgage lenders committed to?
No lender ever wants to reach the stage where they have to repossess a borrower’s home; repossession is an absolute last resort or when it is no longer of benefit to the borrower. The Mortgage Charter will provide a range of short and longer-term measures that can be used to help customers who are experiencing difficulties. All options should be thoroughly researched to make sure that the borrower is making the right decision that suits their financial situation. So, what does the Charter offer?
- Anyone who is worried about their mortgage repayments can contact their lender for assistance without any impact on their credit file.
- Support is available for customers who are up-to-date with payments to switch to a new mortgage deal at the end of their existing fixed-rate deal without another affordability check.
- To provide well-timed information to help customers plan ahead should their current rate be due to end.
- To offer tailored support for anyone struggling and deploy highly trained staff to help customers, with a range of options available. Customers who are currently in arrears should continue to work with their lender for the support that they need.
- From 26 June, customers will not be forced to leave their home without their consent unless in exceptional circumstances, in less than a year from their first missed payment. This is not applicable to customers who own Buy to Let properties.
- Customers approaching the end of a fixed-rate deal will have the chance to lock in a new deal up to six months ahead. They will also be able to manage their new deal and request a better like-for-like deal with their lender right up until their new term starts, if one is available.
- Customers who are up to date with their payments can switch to interest-only payments for six months or extend their mortgage term to reduce their monthly payments and give customers the option to revert to their original term within six months by contacting their lender. [1]
Lenders know that this is an anxious time for mortgage customers and support is available and the Mortgage Charter cements that support. Anyone who is worried about their finances should contact their lender to find out what options are available to help and this will not impact your credit score or seek the advice of your advisor.
Is there any risk in switching to interest-only or extending my term?
Whilst the new Mortgage Charter is able to offer borrowers the option to switch to six months of interest-only payments or take an extension to their mortgage term to reduce monthly outgoings, this could provide much-needed short-term relief. However, it is important to look at all the pros and cons; for example, by switching to an interest-only deal means that borrowers won’t have paid off any of the capital and after the six-month reprieve has ended, payments are more likely to increase again to cover the reduction. Any short-term help could result in more financial pressure come 2024. [2]
It’s definitely worth sitting down with an advisor and map out your current income and outgoings now, and gauge where you could be financially in six months’ time before switching to a Mortgage Charter-backed deal. You may find that you don’t need to switch after all and that by taking out one of these options could in fact make your financial situation more challenging.
Which mortgage lenders have signed the Mortgage Charter?
- AIB Group (UK) plc, including AIB (NI) and Allied Irish Bank (GB)
- Aldermore Bank
- Bank of Ireland UK
- Barclays
- Bath Building Society
- Buckinghamshire Building Society
- The Co-operative Bank, including Platform and Britannia
- Coventry Building Society
- Danske Bank
- Darlington Building Society
- Dudley Building Society
- Earl Shilton Building Society
- Ecology Building Society
- Family Building Society
- Furness Building Society
- Glasgow Credit Union
- Hinckley & Rugby Building Society
- HSBC, including First Direct
- Kensington Mortgage Company
- Leeds Building Society
- Leek Building Society
- Lloyds, including Halifax and Scottish Widows
- Loughborough Building Society
- Mansfield Building Society
- Melton Mowbray Building Society
- Metro Bank
- Monmouthshire Building Society
- Nationwide Building Society
- NatWest, including RBS and Ulster Bank
- Newbury Building Society
- Newcastle Building Society, including Manchester Building Society
- Nottingham Building Society
- OSB Group plc, trading as Precise Mortgages and Kent Reliance
- Principality Building Society
- Progressive Building Society
- Santander
- Scottish Building Society
- Skipton Building Society
- Suffolk Building Society
- Teachers Building Society
- Tipton & Coseley Building Society
- TSB, including Whistletree
- The Vernon Building Society
- United Trust Bank Limited
- Virgin Money, including Clydesdale Bank and Yorkshire Bank
- West Bromwich Building Society [3]
What should I do if my mortgage lender hasn’t signed up to the Mortgage Charter?
There are some lenders who haven’t signed the Mortgage Charter, but 85% of UK mortgages are held with lenders who have agreed to it. [4] If your lender hasn’t signed up they should still offer you support if you are struggling with your mortgage payments.
If you need help in calculating your income and outgoings to see of the Mortgage Charter support can help you, or you need assistance in finding out what options work best for you outside of using these products, please contact one of our friendly team here at Downton Mortgages & Financial Services. Let us help you reach a solution that will give you financial peace of mind when it comes to your mortgage repayments.
The information contained within was correct at the time of publication but is subject to change.
[1] http://www.theco-operativebank.co.uk
[2] www.mpamag.co.uk