Mortgage Mayhem: will six months breathing space stop housing crash?

Concern remains that the mayhem surrounding the mortgage market may yet trigger a housing market crash.

At the start of the weekend Chancellor Jeremy Hunt celebrated what he called “a new mortgage charter providing limited support to residential mortgage customers” - although it contained no explicit measures to help buy to let investors.

Hunt says: “I agreed with the banks and the principal mortgage lenders and the Financial Conduct Authority three very important things. The first is that absolutely anyone can talk to their bank or their mortgage lender and it will have no impact whatsoever on their credit score.

“The second is that if you are anxious about the impact on your family finances and you change your mortgage to interest only or you extend the term of your mortgage and you want to go back to your original mortgage deal, within six months, you can do so, no questions asked and no impact on your credit score. That gives people a powerful new tool for managing their monthly budgets – and it will begin taking effect within the next two weeks.

“And finally for people who are at risk of losing their home in that extreme situation, the banks and mortgage lenders have a number of things in place. The last thing that they want to do to repossess a home, but in that extreme situation they have agreed there will be a minimum 12 month period before there’s a repossession without consent.

“These measures should offer comfort to those who are anxious about high interest rates and support for those who do get into difficulty.”

But there’s a good deal of scepticism whether the six month period for owners to revert to their original mortgage deal is enough to be meaningful.

Mark Harris, chief executive of mortgage broker SPF Private Clients, says: “This announcement was expected and is welcomed.  The payment shock is only affecting a small percentage of homeowners but any help to reduce stress is positive. My only question is - is six months long enough? What’s going to change in six months’ time?”

The charter drawn up by lenders and Chancellor Hunt contains these elements: 

- Anyone worried about their mortgage repayments can call their lender for information and support, without any impact on their credit score and we would encourage you to contact your bank who are there to help;

- 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 is available;

- A new agreement between lenders, the Financial Conduct Authority 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 or affecting 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 should their current rate be due to end;

- Offer tailored support for anyone struggling and deploy highly trained staff to help customers. This could mean extending their term to reduce their payments, offering a switch to interest only payments, but also a range of other options like a temporary payment deferral or part interest-part repayment. The right option will depend on the customer’s circumstances.