Help is at hand for borrowers

Posted on 26th June 23

CEO Kevin Gray considers the impact of the latest interest rate rises on mortgages and the new Mortgage Charter launched to assist borrowers facing difficulty with their payments.

At the time of writing, my eldest daughter is glued to the television, watching everything on Glastonbury.  She was still somewhat smarting over failing to get a ticket to this year’s festival.  I tried to console her that sleeping in her bed at home would be far more comfortable than being in a tent and that it was too humid to be standing in a cow field listening to music all weekend.  I did not have much success in cheering her up.  I changed tack and reminded her that she had saved £340 on the ticket price, a whopping 19% increase over the 2022 price! This was a more successful tactic as she nodded and mouthed some agreement with my statement. The impact of inflation on the price of festival and gig tickets is apparently being decried by all on social media.  

Figures published this week indicated that price inflation in the UK had unexpectedly not reduced, despite the series of Bank of England (BOE) rate rises over the last 12 months.  Even more worrying was the fact that core inflation, which removes the volatility of transitory price increases on the likes of energy and foodstuffs, was actually still rising. It appears as though inflation is no longer solely due to external factors such as the war in Ukraine, but is worryingly becoming ingrained into the domestic economy. The UK’s large and important services sector is clearly not able to fully absorb rising costs and is passing on cost increases to its customers.  The BOE’s response has been to speed up the increase in interest rates and to warn that it will ‘do what is necessary’ to get inflation back under control.  That is code for being prepared to increase future interest rates even higher.

Higher interest rates are a good thing for savers, but they are very bad for some groups and none more so than the 30% of the population who have mortgages. The rapid rise in property prices over the last ten years has required mortgage payers to borrow an increased multiple of their salaries to finance a home purchase. This was fine when interest rates were very low, but has become a major problem now that the BOE base rate has risen sharply to 5%. Of particular concern are the millions of fixed rate deals that are maturing in 2023. The replacement deals on offer are significantly more expensive. For example, two-year fixed rate mortgages which were available at 1.5% only a few years ago are now being priced above 6%.  For a lot of people, that means a painful increase in their monthly mortgage interest payments on top of other household cost-of-living increases.  The danger is of course that more borrowers fall into arrears and ultimately lose their homes.

Bath Building Society’s (BBS) social purpose is to change the lives of its Members for the better.  It is certainly not in business to throw people out of their homes and will always strive to avoid repossessions where it possibly could.  Thankfully, most banks and building societies think the same way and are starting to come together around a new Mortgage Charter to assist borrowers who are in difficulty or need some respite from their normal payments.  BBS will be signing up to this Charter when it becomes fully operational in the coming weeks.  The most significant elements of the Charter include 1) enhanced communication and support to borrowers with maturing mortgage deals, 2) allowing borrowers to temporarily switch to interest only payments or extend their mortgage terms, 3) offering tailored support to borrowers who are struggling and 4) guaranteeing that borrowers will not be repossessed within 12 months of their first missed payments.  The package will also be further enhanced by the UK Treasury making support for mortgage interest payment available more quickly to those on Universal Credit.  The Charter should provide greater assurance to borrowers when they have concerns about access to roll over mortgage deals, when they are having temporary income difficulties, when they are truly struggling to keep up with their payments and when they have fallen into arrears. The Mortgage Charter is a very good thing as it will help borrowers and that should be welcomed.

BBS encourages any of its existing borrowers who are having difficulty in keeping up with their repayments to contact our Mortgage Operations Department on 01225 475719 as soon as possible.  BBS is your business and we are here to help you.  If you are not a Member of BBS but would like to know more about what the Society could do to help you with your saving or borrowing requirements, then please contact our Mortgage Operations team.

I’m now off to watch Blondie and Elton do their stuff at Glasto from the comfort of my armchair.  I wish I’d bought a ticket despite the cost!