According to a Mortgage Solutions poll, approximately 39 per cent of brokers said enquiries had stayed the same and only 17 per cent said their enquiries had increased since the joint government-lender initiative was brought out.
The voluntary charter was launched in the Summer this year and sets out supports that lenders will offer to struggling mortgage borrowers.
This includes allowing borrowers to contact their lender for help without impacting their credit file and enabling borrowers who are up to date with payments to switch to a new mortgage when their fixed term ends without another affordability check. The ability to switch without an affordability check took effect from 10 July and will be available six months before a borrower’s fixed term period expires. Consumers can also request a better like-for-like deal before their term ends if one becomes available.
Lenders have also agreed to send timely information so borrowers can plan ahead before their rate ends, and offer support to those struggling financially. This may include extending their mortgage term to reduce payments, switching to an interest-only payment structure, or temporarily deferring payments.
Currently, the lenders signed up to the charter represent around 90 per cent of the mortgage market.
Senior executives at lenders said that the take-up of the Mortgage Charter measures are expected to be lower than the pandemic payment holiday and that the measures should be a last resort.
Charter has had ‘zero effect’ on mortgage enquiry volume
Stephen Perkins, managing director at Yellow Brick Mortgages, agreed that the Mortgage Charter had had “zero effect on the volume of mortgage enquiries”.
“Clients were already looking at longer terms or interest-only to reduce the impact of the jump in interest rates. The Charter only gave clients more safety in having such discussions mid-deal with their current lender for six months without it impacting their credit rating.
“The parts about allowing clients to secure a new rate earlier were not worded clearly enough, so have had no real impact, with many lenders still only offering rates four months in advance,” he added.
Perkins added that it would have to see how lenders view any support clients had under the Mortgage Charter in future, as although it may not show on their credit report as arrears, lenders could still choose not to lend to clients who have used charter support.
“I think the Mortgage Charter was a good headline, without any substance, like most of the current government’s policies,” he added.
Darryl Dhoffer, mortgage expert at The Mortgage Expert, said that the Charter had had no bearing on enquiries, and they had actually dropped by 25 to 30 per cent but that was due to a drop in the wider market.
“Fortunately, we have only had a very small percentage enquire about the Mortgage Charter and what it means to them, and as yet, no client has had to make use by either extending the mortgage term or for a short period changing from a repayment to an interest-only mortgage.
“I explain that help is there if needed. I also explain the consequences of extending the debt by elongating the overall term of a mortgage, or by looking at interest-only for a maximum of six months and their capital debt not reducing, plus future repayments increasing,” he noted.
Drop in enquiries is due to wider market conditions
David Hollingworth, associate director of communications at L&C Mortgages, said that the results will reflect the “general market” as much as the Mortgage Charter.
He continued: “The market is likely to be slower and activity muted especially in the purchase market, as households consider how higher interest rates will affect their decision to move.
“Those coming to the end of a deal clearly need to take some action, but the results here suggest that although borrowers will be dealing with some substantial rises in payments they are not generally deciding to use the Mortgage Charter options in any great number.”
Hollingworth noted that this could be as borrowers understand that temporarily switching to interest-only or extending their mortgage term will have a “longer term cost implication and it may not be a long enough break”.
“That will also no doubt be helped by advisers explaining the effect of these options and more borrowers potentially deciding to tough it out in the hope that rates will improve over time.
“Having said that, it will be important for brokers to be aware of the options and how best to put that in place for the borrower if they are keen to proceed. That will be especially true where they may be looking to put a product transfer in place at the same time and different lenders will have different processes to take account of,” he added.
Hollingworth said that the Association of Mortgage Intermediaries (AMI) has released more useful information for advisers to ensure they “undertake a consistent approach” as the Charter seeks to ensure borrowers are able to “consider the options where rates may improve over time”.
Nathan Blissett, founder and principal mortgage adviser of Dwello Mortgages, continued that Mortgage Charter had led to “little to no movement or difference to our very volatile market”.
He added: “In a nutshell it’s too early to tell on the ramifications of this new legislation based on the many factors that have now been put into play.
“With lenders now agreeing to these terms, protecting homeowners with time and understanding, it seems that it will be a small win for our stressed-out UK consumers.”
Blissett added that it seemed to be a “plaster over a crack in terms of delaying a serious and defining decision making process”, however, if it allows the consumer “more time and breathing space to make an informed decision, then it should be looked at as a positive”.
He noted that the Charter only applies to residential mortgages, so some buy-to-let landlords may be “still some way from finding affordable alternative solutions”.
Charter has mixed reaction with clients
John Phillips, joint CEO of Spicerhaart, said that across its nationwide broker network it had seen “consistent levels of enquiries”, but it could not attribute this to the Charter.
“It certainly has encouraged some clients to investigate support available in challenging times. If anything, the Mortgage Charter formalises and promotes much of the support and safeguards already available from lenders. After all, it’s safe to say no lender wants to see a client in difficulty, and it’s the same for brokers too,” he added.
Phillips said brokers had to educate clients about measures in case of an emergency and this was especially true for those switching to interest-only for six months, which he said could be seen as foreseeable harm under Consumer Duty.
“It’s all part of the wider education gap that currently exists, with so much confusion, misunderstanding and misinformation in the mainstream media. It’s up to brokers on the frontline to educate clients about the options available to them,” he noted.
Neezam Romjon, co-founder at Rebus Financial Services, said he got the impression that most mortgage borrowers were not fully aware of the Mortgage Charter and its detail.
“There is still a fear for many that contacting their lender for help with their mortgage payments will negatively affect their credit score and put their home at risk of repossession.
“The clients I have spoken with are not keen on switching to interest-only for six months as it just feels like kicking the can down the road. Some clients have enquired about extending their term, but they are often already on a mortgage term of 30 plus years so the difference in monthly payments is negligible,” he added.
Romjon said that it was “positive” to see lender and government collaboration but the Charter “feels a bit like papering over the cracks to me”.
