The measures include offering a 12-month grace period before repossessions, borrowers being able to extend mortgage terms, switch to interest-only plans and go to their lender without it impacting their credit score.
Laura Suter, head of personal finance at AJ Bell, said that the deal struck a “middle ground” offering support for homeowners hardest hit but not boosting inflation.
Suter pointed to the ability for those struggling to temporarily switch to interest-only payments or extend their mortgage term, adding that this would be easily reversed if finances improve.
However, she warned that this could have a long-term impact. For example, someone who borrowed £200,000 could pay £39,000 more in interest if they choose a 35-year term rather than a 25-year term assuming a three per cent interest rate for the duration of the loan.
“Clearly the more you borrow and the higher the interest rate the more the cost of extending the term is amplified, so at £400,000 of borrowing that 10-year extension from 25 year to 35 years costs an extra £77,500,” Suter explained.
Suter said that the “biggest thing” that should be done was to ensure that customers struggling with payments were “treated equally and fairly, regardless of who their mortgage lender is”.
“We saw during the pandemic that sub-standard support from financial firms was rife, with the FCA subsequently fining firms for failing to help customers – so the regulator needs to be hot on similar failures today,” she noted.
Communication between lenders and borrowers vital
Karen Noye, mortgage expert at Quilter, agreed, adding that that the measures were “slightly positive news” for mortgage borrowers worried about rising payments.
She explained that allowing adjustments in mortgage terms for short periods and the ability to switch to interest-only could “provide immediate relief by reducing monthly repayments”.
“Importantly, borrowers can later return to their original mortgage deal within six months, ensuring continuity and stability while not impacting their credit score,” Noye added.
Noye said that this would hopefully give people a “bit of breathing room to find additional streams of income or get their finances in order”.
She said that it would offer reassurance to borrowers, but it was “crucial to remain vigilant and understand that missing payments or opting for a complete payment break, commonly known as a mortgage holiday, may still affect future borrowing opportunities”.
Noye said that the agreement for a 12-month delay in initiating repossession proceedings would offer “some slack for struggling homeowners, allowing them additional time to stabilise their financial situations”.
However, she said that it was important for borrowers to engage with lenders and explore options for repayment plans, mortgage holidays or mortgage term extensions.
“Open and honest communication with lenders can pave the way for finding suitable solutions that prevent further financial distress,” she added.
Noye urged borrowers to be “proactive in managing their finances during this challenging period” and to seek professional advice from mortgage brokers, debt management charities, or organisations like Citizens Advice.
“These resources can assist borrowers in assessing their financial capabilities, exploring cost-cutting measures, and identifying additional sources of income,” she said.
Noye said that interest hikes could present opportunities for savers as higher interest rates on savings accounts could offer some relief with better returns offsetting mortgage costs.
“However, it is essential to ensure that banks and building societies pass on these rate increases in a timely manner, as recent criticism has highlighted delays in providing better rates to savers with easy-access accounts,” she said.
‘Mortgage costs are top of the financial concern list for many’
Alice Haine, personal finance analyst at Bestinvest, said that the 12-month delay in repossession proceedings could offer some relief but was “unlikely to stem the tidal wave of worry flooding over Britain’s homeowners right now”.
She explained: “These types of measures all help, but they don’t remove the worry for millions of borrowers who are now carefully considering how their finances will cope in the months and years ahead.
“Whether it is a first-time buyer trying to get a foot on the property ladder or someone remortgaging in the next 12 months, or even in three years’ time, mortgage costs are top of the financial concern list for many.”
Haine said that rising interest rates and higher mortgage rates meant people would have to “drastically cut back their expenditure to ensure they can either afford to get on the property ladder in the first place or have enough money to meet higher repayments as well as their other everyday bills”.
“This will require a serious adjustment in spending behaviour at a time when households may also have to contend with falling property prices and a general sense that their wealth is on the decline,” she added.
Haine said that with higher inflation and heightened interest rate environment will “plunge the country into recession” and “job security could also become a major concern”.
“Thus far, companies have managed to defend their profit margins by passing on costs to customers, but there could be a tipping point when cost cuts – including job losses – are resorted to instead. As a result, the government’s mortgage measures may seem more of a sticking plaster than a lasting solution,” she noted.
