Mortgage help: lenders pledge more help as rates soar

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last updated 10 July 2023

Homeowners struggling with soaring mortgage rates amid interest rate hikes will get more flexibility from today with their payments after bank bosses met the chancellor, Jeremy Hunt, in Downing Street and agreed to a series of support measures.

Borrowers will be able to make a temporary change to their mortgage for six months to give them some breathing space, while there will be a 12-month delay before repossession proceedings can start against those who have missed payments.

The chancellor said the government was particularly worried about people at risk of losing their homes because they fall behind in their mortgage payments, and homeowners “who are having to change their mortgage because their fixed rate comes to an end, and they're worried about the impact on their family finances of higher mortgage rates”.

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Mortgage rates are continuing to rise after the Bank of England announced a shock hike in the base rate to 5% last month.

According to the data provider Moneyfacts, the average two-year fixed-rate mortgage deal is 6.63%. This is up from 6.54% on the previous working day. The average five-year fix is 6.13%, up from 6.04% on the previous working day.

Hunt said the support package agreed with mortgage lenders “should offer comfort to those who are anxious about high interest rates and support for those who do get into difficulty”.

He also reiterated that tackling high inflation was the government’s number one priority and that he was “absolutely committed to supporting the Bank of England to do what it takes”.

What mortgage support measures have been announced?

A range of mortgage lenders – which cover over 75% of the market - have agreed to a new mortgage charter providing support to residential mortgage customers. The measures are:

Anyone worried about their mortgage repayments can call their lender for information and support, without any impact on their credit score.
Customers won’t be forced to have their homes repossessed within 12 months from their first missed payment.
Customers approaching the end of a fixed-rate deal will be offered the chance to lock in a deal up to six months ahead. They will also be able to apply for a better deal right up until their new term starts, if one becomes available.
A new agreement between lenders, the Financial Conduct Authority (FCA) and the government permitting customers to switch to an interest-only mortgage for six months, or extend their mortgage term to reduce their monthly payments and switch back to their original term within the first six months, if they choose to. Both options can be taken without a new affordability check and with no effect on their credit score.
Support 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.
Providing well-timed information to help customers plan ahead if their current rate is due to end.
Offer tailored support for anyone struggling: this could mean extending their term to reduce their payments, offering a switch to interest-only payments, or other options like a temporary payment deferral or part-interest part-repayment option.

Hunt said it was important homeowners can talk to their mortgage lender without it having any impact on their credit score.

Nikhil Rathi, chief executive of the FCA, said: “This meeting builds on the work we’ve done over the last year to ensure those who get into difficulty receive the tailored support they need. We’ll move quickly to make any changes needed to support today’s commitments."

If you‘re having trouble making your mortgage payments, the golden rule is to always make sure you speak to your lender about it. If you miss a payment or simply decide to stop paying for a period of time - known as a mortgage holiday - this could have serious consequences and will also harm your credit score.

Is there a mortgage crisis?

The government has been under pressure to step in and help mortgage customers after the surprise announcement to hike interest rates from 4.5% to 5% last month.

Opposition parties are calling on the government to do more. Shadow chancellor Rachel Reeves branded the chancellor's mortgage measures "a weak response". The Liberal Democrats are calling for a Mortgage Protection Fund, which would offer targeted support of up to £300 a month to those families facing the steepest rise in mortgage costs and the prospect of losing their homes. It says households face a £3,600 rise in mortgage payments, equivalent to a 6p income tax hike.

Liberal Democrat leader Ed Davey said: “This is a Conservative mortgage tax on millions of families. People are seeing their monthly mortgage payments go through the roof, all because the Conservatives lost control of inflation and the economy.”

However, aside from the support measures agreed with the mortgage industry, Hunt and prime minister Rishi Sunak have both dismissed suggestions to intervene, arguing it could undermine the Bank of England's battle against inflation. The latest figures show inflation remained stuck at 8.7% in May.

While many commentators have called the sharp rise in mortgage rates a “crisis” or a “mortgage rate crunch”, the Treasury has released data showing despite the panic among some households about mortgage payments, mortgage arrears and defaults are still incredibly low, and many homeowners are in a strong position.

In the first quarter of 2023, the FCA reported 0.86% of total residential mortgage balances in arrears - compared to a 3.32% rate in 2009.

The proportion of disposable income spent on mortgage payments is currently at 5.4%, compared to around 10% in the 1990s and prior to the financial crisis.

Meanwhile, the average homeowner remortgaging over the past 12 months had around a 50% loan-to-value ratio. The Treasury said: “This indicates homeowners have considerable equity in their homes, which makes it easier to manage repayments. Lenders have less than 10% ‘owner-occupier mortgages’ on their books with loan-to-value rates greater than 75%, compared to around 25% before the 2008 financial crisis. Taken together, this puts the market in a significantly stronger position than before.”

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Ruth is an award-winning financial journalist with more than 15 years' experience of working on national newspapers, websites and specialist magazines.

She is passionate about helping people feel more confident about their finances. She was previously editor of Times Money Mentor, and prior to that was deputy Money editor at The Sunday Times.

A multi-award winning journalist, Ruth started her career on a pensions magazine at the FT Group, and has also worked at Money Observer and Money Advice Service.

Outside of work, she is a mum to two young children, while also serving as a magistrate and an NHS volunteer.