Grace Period to Be Given for 12 Months Before Repossessions
The current Prime Minister, Rishi Sunak, is trying to find a solution to the impending mortgage crisis that threatens the home security of millions of UK residents. The good news is that the government has reached an agreement with the biggest UK banks that they will give a 12-month grace period to homeowners who default on their mortgages, according to the UK Treasury. The banks will wait this long before starting the repossession process against defaulting homeowners.
Out of Reach
This grace period before repossession comes when increasing property prices and concerns about economic uncertainty and affordability are keeping homeownership out of reach for many living in the UK. The UK finance minister, Jeremy Hunt, supports the grace period measure. He says this and similar measures should ensure those worried about high interest rates have some comfort and relief, and anyone who gets into difficulty can access the support they need.
Increasing House Prices are Causing a Crisis
One of the biggest contributors to Britain's mortgage crisis has been the rapid increase in housing prices. Property values in some regions in the UK have experienced rapid growth, thereby surpassing inflation and wage increases.
The increase in house prices is being felt by those on lower incomes who have difficulty saving for a deposit and qualifying for a mortgage.
Additionally, the Bank of England raised its mortgage interest rate by 0.5% a day before the government and major banks reached the grace period agreement and subsequently announced it.
This is the 13th time the base interest rate, and thus the cost of borrowing and repaying has increased since late 2021.
The Bank Rate is now five percent, but there are worries it could rise to six percent and be at the highest it has been in twenty years.
Demand and Supply Imbalances
The UK mortgage crisis is being driven by a supply-demand imbalance within the housing market.
The supply side is being driven by fewer houses being constructed, and the demand side is being driven by the limited availability of houses and population growth.
The increased demand and falling supply have led to competition among buyers, driving the cost of housing and making homeownership a seemingly unachievable dream for many.
Affordability is making Ownership More Difficult
There is also the issue of affordability, which has become a concern for people on lower incomes. The ratio of the price of an average house and the average income has reached unprecedented levels. As a result, many potential buyers are finding it harder to secure mortgages compatible with their financial and repayment capabilities.
While first-time buyers feel the pressure of affordability to a higher degree, it is also a source of concern for existing home buyers who want to buy a new property and climb the property ladder.
One leading economist says the increase in repayment costs coupled with cost-of-living concerns and difficulties will push hundreds of thousands of families over the line and into insolvency. Many of these families will need repossession help soon after the grace period has ended.
Britain’s mortgage crisis is tied to economic uncertainty caused by events, including the global pandemic and Brexit. This uncertainty has caused lenders to be more cautious, thereby making it much harder for individuals to get the mortgages they need to become homeowners.
Even with the new grace period, there are still concerns many homeowners and landlords will default on their loans and others will miss out on a chance to become homeowners. If you are facing repossession of your home, contact us today for help and advice. Call 0800 298 0571