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Mortgage support measures agreed by lenders

Young couple on sofa with laptop and paperwork

Following another hike in interest rates, the main banks and building societies have agreed a series of measures to help homeowners facing higher mortgage repayments.

Last week's jump from 4.5% to 5% took interest rates to the highest level in 15 years, as part of the Bank of England's ongoing effort to tackle persistently high inflation.

It was a bigger increase than many analysts had been expecting. A report by BBC News said it meant that homeowners with a typical tracker mortgage will pay about £47 more each month, while those with a standard variable rate mortgage will see their monthly bill go up by around £30.

This adds to cost-of-living pressures from high inflation.

Rates rising for fixed-rate deals

Around 85% of all mortgages are fixed-rate, according to the Bank of England.

People with fixed-rate mortgages will not feel the effects of rate rises immediately. However, there are around 800,000 fixed-rate deals due to end in the second half of this year, while a further 1.6 million are set to end in 2024, according to data from UK Finance.

Even before the latest rate rise, average mortgage pricing for a two-year deal had climbed to 6.01%, rising above 6% for the first time since the end of last year, according to data from Moneyfacts. Rates have also been rising for five-year fixed deals.

Lenders offer more flexibility

The UK government has ruled out providing major financial support to mortgage holders, with Chancellor Jeremy Hunt saying that offering mortgage relief schemes would "make inflation worse, not better".

But after Hunt met with mortgage lenders and the Financial Conduct Authority (FCA) on Friday, lenders covering over 75% of the market agreed to a new mortgage charter aimed at supporting residential mortgage customers through the current period of high rates and high inflation.

It includes letting people extend their mortgage term or switch to an interest-only agreement for a temporary period without a new affordability check or affecting their credit score.

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.

And those who are up-to-date with payments can switch to a new mortgage deal at the end of their existing fixed-rate deal without another affordability check.

"Anyone who is worried about their finances should speak to their lender to find out what options are available to help," said David Postings, chief executive of banking industry association UK Finance. "Contacting your lender to talk about the options available will not impact your credit score."

Posted by Fidelius on June 26th 2023

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