Mortgage crisis support: the 3 key pledges revealed by the Chancellor

Homeowners struggling with their mortgage payments are to benefit from greater protection against repossession, the Chancellor has announced.

The move comes after leading banks and building societies met with Jeremy Hunt to discuss the deepening mortgage crisis, which has seen average rates for a two-year fix surpass 6%.

Lenders have agreed to offer more flexibility to those falling behind on their repayments by agreeing to a 12-month delay before taking repossession proceedings.

Customers will also be able to speak to their provider about mortgage support without it impacting their credit score, and make temporary changes to their mortgage deal such as switching to interest-only payments.

The government has, however, stopped short of offering direct financial support to those struggling with their home loans, and has not indicated any help for renters.

Here, Which? unpacks the latest announcement and details how the changes could impact you.

Lenders agree to mortgage support measures

Mr Hunt met with bosses from the likes of HSBC, Santander and Barclays after Thursday's 13th consecutive base rate hike threatened further pain for struggling households.

Speaking to broadcasters, the Chancellor stressed concern for families at-risk of losing their homes and those whose payments could soar as they come to remortgage.

Average fixed-rate mortgage interest rates are now 6.19% for a two-year deal and 5.83% for five years, according to Moneyfacts.

What support measures have been announced?

Three key announcements have been made following Mr Hunt's meeting with major banks on Friday.

It's not yet known when the following measures will come into effect, but they have been pledged.

Fears of repossession to be eased 

In a similar style to the help offered in the pandemic, a repossession grace period is to be introduced - giving breathing space to homeowners who fall behind on their monthly mortgage bills. 

The number of homes being repossessed jumped by 50% in the first quarter of this year compared with 2022, according to data from UK Finance. In total, 750 homes were repossessed in January, February and March.

A lender can normally start repossession proceedings after three missed payments. Now, in a move announced by Jeremy Hunt, your home won't be repossessed without consent for at least 12 months. 

'The last thing that they (lenders) want to do is to repossess a home, but in that extreme situation they have agreed there will be a minimum 12-month period before there’s a repossession without consent,' Mr Hunt said. 

The extension is hoped to offer some slack for homeowners, allowing them additional time to stabilise their financial situations.

Flexibility to change mortgage terms

Borrowers will have the opportunity to make adjustments to their mortgage terms for a short period.

For example, homeowners will be able to temporarily switch to interest-only payments, or extend their mortgage term without long-term repercussions. They can then switch back to their original deal within the following six months 'no questions asked'.

A new affordability check will not be required before the switch.

• Find out more: temporary measures to reduce mortgage payments

Support will have no impact on credit scores

Taking temporary payment relief previously may have impacted credit scores, but Mr Hunt says credit ratings will not be impacted by borrowers who opt for support.

The Chancellor says 'absolutely anyone can talk to their lender and it will have no impact whatsoever on their credit score'.

• Find out more: credit reports - all you need to know

'Speak to your lender to find the best solution'

Commenting on today's announcement, Reena Sewraz, Which? money expert, said: 'It's positive to see banks agreeing to delay repossessions without consent by at least 12 months and allowing mortgage holders to make temporary changes to the terms of their deal, which could help to create some breathing space for those worried about their situation. 

'However, switching to interest-only payments or extending the term of a mortgage won't be right for everybody so it's still important to take time to speak to your lender, understand your options and help find what is right for you.

'Banks are obliged to offer support to customers experiencing difficult times and if borrowers are struggling to meet repayments, they should talk to their lender quickly.'  

What does the future hold for mortgage rates?

The Bank of England base rate is expected to keep rising as the government struggles to tame inflation. Forecasters predict the base rate could hit 6% by the end of the year, meaning mortgage costs will likely continue to climb.

Due to surging costs, there have been warnings that 1.4 million mortgage holders will lose at least a fifth of their disposable income in additional repayments.

According to the Resolution Foundation think tank, the average household remortgaging next year will see costs rise by £2,900.

More than 80% of homeowners with a mortgage are on fixed-rate deals, according to UK Finance. 

Around 700,000 will be coming off their existing fixed deals before the end of the year. The majority of these rates were set at interest below 2% – but current mortgages are priced significantly higher than they were two years ago, meaning borrowers are in for a significant shock when they remortgage.