But how does this new Mortgage Charter affect you, and has your Lender signed up?
Mortgage Charter – Background
At a meeting between the Government and Mortgage Lenders this month, a number of policies were agreed to assist current residential mortgage holders during this difficult time. The key benefits of the resulting ‘Mortgage Charter’ break down into four areas
- New rates – Mortgage Companies to offer new mortgage rates earlier
- Affordability – Option to extend mortgage term
- Affordability – Option to switch to interest only
- Repossessions – Mortgage Companies to be more patient
A full list of Lenders that have signed up to the Mortgage Charter is included at the bottom of this page
Selecting a new rate – six months ahead
If you have a mortgage rate that is coming to an end, Lender’s will generally give you the option to select a new mortgage rate going forward. This will happen without credit scoring. Most Lenders have typically run a 3-month window, meaning that a borrower whose rate ends on 31st December can access a new rate from 1st October.
Some Lenders, like Halifax and Barclays, have already started offering their borrowers the option to secure a new mortgage rate 6 months ahead of use.
Therefore selecting in July a new rate for 1st January. Under the Mortgage Charter, a new rate will be available for selection six months ahead for all Lenders signing up to the scheme.
Also, if a rate is secured and better rates are later issued within the six-month window, you will have the option to switch to the improved rate.
Affordability – extend your mortgage term
If you have a capital repayment mortgage, the longer the remaining term on your mortgage the lower your monthly payments. Therefore one way to reduce the monthly payments on your mortgage would be to extend the mortgage term.
Therefore under the Mortgage Charter, you will be given the option to extend your mortgage term to reduce your outgoings with the option to revert your mortgage term back to the original length within six months.
Please note: Those with an interest-only mortgage will not see any reduction in monthly payment by increasing their mortgage term.
Increasing your mortgage term increases the time over which you are paying mortgage interest and greatly increases your total mortgage cost. It is therefore best avoided wherever possible.
Affordability – switch to an Interest Only Mortgage
Most residential mortgages are set up on a capital repayment basis. This means that as well as paying interest on your mortgage every month, you are repaying an element of the balance you owe (the Capital).
Some residential mortgages are set up on an interest-only basis. Under these arrangements, no capital is repaid with a monthly payment and the borrower simply covers the interest on the mortgage. This makes monthly payments much lower.
Under the Mortgage Charter, your Lender will let you switch to an interest-only mortgage for up to six months to reduce your outgoings.
Please note: a switch to interest only will simply add interest and cost to your mortgage over the long term. It will be an expensive way to reduce your monthly costs over a few months. It should be avoided where possible.
Repossessions
If you miss payments on your mortgage you will be aware that your Lender will add additional charges to your account and will request that you bring the account up to date. As a final step, if mortgage arrears are not cleared or worsen, your Lender may take steps to repossess the property.
Under the Mortgage Charter a repossession will not happen within 12 months of the first missed mortgage payments, unless in exceptional circumstance.
Always contact your Lender swiftly if you have problems meeting your mortgage payments.
What should I do now?
Speaking to our expert mortgage team is always your best course of action when changing your mortgage rate.
Why? Because our team will:
- give you the mortgage advice you need
- secure you a new rate without delay
- alert you if available rates improve
- find you the best rates possible
Lenders that have signed up to the Mortgage Charter
- Barclays
- Bath Building Society
- Buckinghamshire Building Society
- Clydesdale Bank
- Co-operative Bank
- Coventry Building Society
- Darlington Building Society
- Ecology Building Society
- Family Building Society
- First Direct
- Furness Building Society
- Glasgow Credit Union
- Halifax
- Hinkley & Rugby Building Society
- HSBC
- Leeds Building Society
- Leek Building Society
- Lloyds
- Loughborough Building Society
- Melton Mowbray Building Society
- Nationwide Building Society
- Natwest
- Newcastle Building Society
- Nottingham Building Society
- Principality Building Society
- Progressive Building Society
- RBS
- Santander
- Scottish Building Society
- Scottish Widows
- Skipton Building Society
- Suffolk Building Society
- TSB
- Ulster Bank
- Vernon Building Society
- Virgin Money
- West Bromwich Building Society
- Yorkshire Bank
- Yorkshire Building Society
These Lenders hold around 85% of the outstanding mortgage balances in the UK