Hundreds of thousands of mortgage holders facing higher monthly payments due to the conflict in the Middle East will be offered tailored support to manage costs.
The chancellor Rachel Reeves has secured a commitment from the six largest banks and building societies that they will proactively contact 1.6 million customers whose fixed-term deals are ending between now and the end of 2026.
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The average mortgage rate has risen from 4.89% on 2 March to 5.50% by 25 March, increasing the typical annual cost of borrowing £250,000 over 25 years by £1,075, recent analysis by data analytics website Moneyfactscompare found.
Reeves gets banks to reaffirm commitment to the Mortgage Charter
The Treasury has said the UK’s major banks and building societies will double-down on their commitment to the Mortgage Charter, which sets out how lenders can support customers facing higher mortgage costs.
Under the charter, mortgage holders can lock in a new fixed-rate deal with their lender up to six months before their existing one ends, and apply for a better deal if one arises after this point.
It also allows customers to switch to interest-only payments on their mortgage for six months and extend their mortgage term to reduce monthly payments.
Customers can take out these measures without the need for a fresh affordability check, which can lead to a new deal being declined, and there is no impact to credit scores.
Reeves said: “In uncertain times, people need clear reassurance and practical help. That’s why I’ve brought the biggest lenders together to step up support and make sure anyone who is worried can access the Mortgage Charter options quickly, without their credit score being affected.”
Move from Reeves a ‘positive step’
Damien Burke, head of regulatory practice at independent banking and credit advisory consultancy Broadstone, branded the chancellor’s move a “positive step”.
“[It] should help borrowers better understand their options well before their fixed-rate deals end, which can make a significant difference in helping households plan and manage higher repayments,” he said.
“At a time of macro-economic uncertainty, proactive communication and early engagement are often the most effective ways to provide reassurance and prevent short-term payment pressure from turning into longer-term financial difficulty.”
What fixed-rate mortgage holders can do now
If you’re coming off a fixed-rate mortgage this year and are facing higher costs, you can take proactive steps now to lessen the blow, rather than waiting for your lender to contact you.
The first thing to do is see what deal your lender will offer you six months before the existing deal ends, then compare that with what’s on offer from other lenders, said Nick Mendes, mortgage technical manager at broker John Charcol.
“Work out what the payment looks like in pounds and pence, not just in headline rate terms. A lot of people focus only on the interest rate, but the real question is whether the new monthly payment is manageable alongside everything else,” Mendes added.
If your monthly payments look unmanageable, you could see if you can trim your outgoings to free up funds or look at increasing the mortgage term to reduce your monthly payments.
Do note, increasing your mortgage term will mean you’ll pay more in interest as you’re repaying your loan over a longer period of time.
The worst thing to do ahead of your mortgage rate going up is nothing and then consequently missing a payment, Mendes said.
“The important point is not to miss a payment first and ask questions later. Lenders and regulators are both clear that borrowers should engage early, because that is when the broadest range of tailored support is usually available,” he explained.
A mortgage broker can help you if you’re set to come off a fixed-rate deal this year. They can guide you through the best deals on the market and help you decide whether a product transfer with your existing lender or remortgaging to another lender is the best option.
Note, a broker may charge a fee for their services. If they do, costs can vary from between £400 to £500, according to financial advice website Unbiased.