The new Mortgage Charter: your questions answered
Keeping up with the latest property and mortgage news can feel like a full-time job, and that’s why our team does the reading and research for you. Something homeowners may have missed is the launch of the Mortgage Charter. It got a very brief mention in the press, so we’ve provided some more details in the shape of this Q&A article.
Q. What is the new Mortgage Charter?
A. The Mortgage Charter is a set of commitments designed to help new borrowers and those who already have a home loan. The Charter clearly and consistently sets out the assistance available to borrowers who find themselves in financial distress, especially if they become unable to meet their mortgage repayments.
Q. Who is taking part in the Mortgage Charter?
A. The Mortgage Charter is a new agreement between the Government, the Financial Conduct Authority (FCA) and most UK mortgage lenders.
Q. Why was the Mortgage Charter introduced?
A. The Mortgage Charter was introduced in August 2023 in response to rising mortgage rates and the cost of living crisis. The Mortgage Charter makes clear the nature of help that is available from lenders, in response to a feeling that any assistance was little known to borrowers.
Q. What assistance options have been set out?
A. The Mortgage Charter sets out three main ways in which borrowers can obtain better affordability and manage their monthly repayments. These are:
Switching to an interest-only mortgage for a maximum six months: although the monthly repayments will be less, it’s worth noting the borrower will not pay off any of the capital during the interest-only period. As a result, the balance owed will not reduce.
Extending the term of the mortgage: in principle this means taking a longer time to pay back the same amount of money. While increasing the term by 3, 5 or even 10 years will reduce the monthly cost, the borrower will end up paying back more in interest.
Arranging a new mortgage before their current deal ends: borrowers will be able to lock into a new mortgage product up to six months before their current deal ends. This guarantees that if they see a product with a low mortgage rate, they can secure it before it disappears. Even if a new deal is secured in advance, the borrower can ask to change products if an even lower rate is launched, providing it’s at least two weeks before their new deal starts.
Q. Will any of the options affect my credit score?
A. In the past, it hasn’t always been clear if the assistance offered by lenders would impact the borrower’s credit score, which was a cause for concern. One of the Mortgage Charter’s aims is to ensure borrowers choosing one of the options listed aren’t penalised in this way. As a result, switching to an interest-only mortgage, extending the mortgage’s term or fixing into a new deal in advance will not have a detrimental effect on someone’s credit score.
Q. Can I still get help if my lender isn’t signed up to the Mortgage Charter?
A. While almost every UK mortgage lender has signed up to the Mortgage Charter, not every bank or building society is signed up. The FCA, however, wanted to ensure all borrowers could get help if mortgage repayments became a struggle. It has changed its rules so the whole mortgage market has to abide by the following:-
- All lenders should offer borrowers the chance to temporarily reduce their capital repayments or switch to an interest-only repayment plan.
- If a mortgage term was extended, it can be fully or partially reversed within six months of lengthening the loan.
Q. I have a buy-to-let mortgage, does the Mortgage Charter apply to me?
A. The Mortgage Charter only applies to residential mortgages, so landlords with buy-to-let products will not benefit at this time.
Q. Are any other borrowers excluded from the assistance in the Mortgage Charter?
A. Yes. Borrowers who have already missed one mortgage repayment, and those already on interest-only mortgages or with a second-charge mortgage, should expect to be refused some or all of the help.
If you’d like to know more about your borrowing potential, need to move home and borrow more money or are keen to reduce your monthly mortgage repayments, we urge you to speak with an independent financial adviser. Give the team a call and we can put you in touch with an expert that specialises in home loans.
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