Date Published 04 October 2023
What is the Mortgage Charter and What Does it Mean for Me?
If you own a home or plan to buy one in the UK, the current financial situation can feel quite unstable. With interest rates reaching 5.25%, it's becoming increasingly challenging to achieve your dream of owning a home or getting an affordable mortgage, as the costs are rising rapidly.
But don't worry! The government, along with the Financial Conduct Authority (FCA) and many mortgage lenders, has introduced the Mortgage Charter. This charter aims to provide clear solutions for people struggling with their mortgage payments. It's a positive step towards helping those in need.
If you're thinking of buying a house or if your fixed-rate term is ending soon, the Mortgage Charter could make a big difference for you. In simple terms, we'll explain what the Mortgage Charter is and how it will affect homeowners and potential homebuyers.
What is the Mortgage Charter?
On June 26, 2023, the Chancellor of the Exchequer introduced the new 'Mortgage Charter' to help people worried about their mortgage payments. This Charter was developed after talking with major mortgage lenders in December of the previous year and June of this year.
Importantly, more than 85% of the lenders in the mortgage market have agreed to this Charter. It sets out clear standards that these lenders must adhere to when assisting residential mortgage borrowers. The Charter was created in response to the difficulties caused by rising inflation and its effects on households, particularly those with mortgages.
This document details various guidelines and principles that mortgage lenders should adhere to to ensure transparency in lending practices. It also aims to promote fair treatment for borrowers and measures that will make mortgages more affordable and accessible.
What Are the Key Elements in the Mortgage Charter?
The Mortgage Charter sets out crucial stipulations aimed at assisting borrowers in various mortgage-related situations. Let's break down its essential components.
All lenders have agreed to the following:
● Support for worried borrowers: If you're concerned about your mortgage repayments, you can reach out to your bank for assistance and guidance. This action won't affect your credit file
● Switching deals: Customers maintaining current payment schedules can transition to a fresh mortgage deal after their fixed-rate agreement concludes without undergoing an additional affordability check
● Timely information: Lenders are committed to offering timely advice to clients whose current rates are nearing expiration
● Tailored support: Banks will offer customised assistance for struggling individuals, facilitated by expert personnel. Solutions include extending the loan term, shifting to interest-only payments, pausing payments temporarily, or introducing part interest-part repayment schemes. The most appropriate choice will hinge on the individual's situation
Signatories to this Charter have committed to:
● Protection from forced eviction: Starting June 26, a borrower won't face eviction without their consent until at least a year after their first missed payment
● Flexibility in new deals: Effective July 10, as the end of a fixed-rate term looms, borrowers can secure a new deal six months in advance. They can also manage this fresh arrangement and seek an improved equivalent deal from their current lender, provided it's available when the new term kicks off
● New collaborative arrangements: A deal has been established between lenders, the FCA, and the government to allow up-to-date customers to either shift to interest-only payments for half a year or lengthen their mortgage duration to lower monthly dues. Importantly, they have the option to revert to the original term within six months upon notifying their bank
Notably, these choices can be exercised without a fresh affordability analysis or any impact on one's credit score.
How the Mortgage Charter Will Affect Homeowners and Those Looking to Buy a Home
Whether you're an existing homeowner or planning to purchase your first home, this Charter will impact your financial journey in the property realm. Here's how:
Impact on Homeowners
As a homeowner, the Mortgage Charter will impact you in the following ways:
Easing Worries about Repayments
The Mortgage Charter aims to address concerns about falling behind on payments and the resulting consequences. If you have trouble with your payments, it's important to talk to your lenders without worrying about negative effects on your credit. This proactive approach encourages open communication and can help prevent financial crises.
Protection from Eviction
One comforting thing is that homeowners won't be evicted right away. According to the rules, you have one year after missing your first payment before any action can be taken. This gives you plenty of time to sort out your finances or find other ways to handle the situation.
Flexible Switching Options
When your fixed-rate mortgage deal is ending, you may feel pressure to renegotiate terms or worry about potential interest rate increases. With the Charter, you have the option to switch to a new mortgage deal without needing an extra affordability check, as long as you have a good payment history. This means less paperwork, making the process easier and less intimidating.
Tailored Support
The Charter makes sure that lenders offer personalised solutions, such as adjusting the loan duration, switching to interest-only payments, or providing other flexible payment options. This tailored approach ensures that the solutions meet your specific needs.
Impacts on Potential Buyers
If you're looking to buy a home, here is what the Mortgage Charter means for you:
Clear Pathway to Homeownership
If you're looking to buy a home, you can be confident that if there are any financial difficulties, you won't be left without help. Lenders are committed to offering support, guidance, and flexible solutions to make getting a mortgage less daunting.
A Buffer Against Market Volatility
Interest rates and market conditions can be unpredictable. However, the Charter's provisions offer protection against financial uncertainties. You have the option to lock in a deal six months ahead or revert to the original terms within a specific timeframe; this flexibility reduces the stress of navigating the mortgage process.
More Control Over Your Mortgage Journey
Once you've finalised your mortgage agreement, the Charter ensures that you're not trapped in a rigid contract. If a better deal becomes available, you have the freedom to switch up until the start of your new term. This flexibility gives you the power to take charge of your financial future.
The Key Takeaway
The Mortgage Charter, introduced during a time of increasing interest rates and financial uncertainties, serves as a guide for homeowners and potential buyers. It provides clear guidelines and support to make the complex world of mortgages easier to navigate.
Whether you're dealing with the challenges of owning a home or exploring new real estate opportunities, this Charter ensures that you're not going through it alone. It's a testament to the collaborative efforts aimed at making homeownership more secure and manageable for everyone.
If you're looking for help with selling or purchasing a home and need some guidance with your mortgage, we can help. Here at Marshall Property, we offer free consultations, which are designed to help us get an understanding of your initial needs, before providing the right financial advice you need to embark on your property journey.
So whether you're a first-time buyer, a property investor or remortgaging, our mortgage and finance team can offer the best expert advice to suit your personal circumstances. Get in touch today for more information and to find out how we can help you.
