With rising costs stretching budgets, keeping up with mortgage payments may seem impossible for some—inability to meet the priority outgoing risks arrears, creditors and even home repossession. However, a new mortgage charter struck between the government and leading UK lenders last year provides temporary relief.
This blog will explain the arrangement and your options once the term concludes.
What is the 12-month mortgage grace period?
The new mortgage charter introduces a consistent 12-month grace period policy among significant lenders. This temporary arrangement prevents banks from progressing legal repossession proceedings in the year following initial mortgage non-payment. Homeowners still accrue arrears during this period but avoid imminent threats of enforcement or eviction. The grace period facilitates financial breathing room for families struggling with broader pressures like inflation. It enables them to seek solutions and stabilise their situation before facing the consequences of missed instalments. However, it lasts for an initial maximum of 12 months only. So, borrowers must look ahead to resume repayments or arrange alternatives afterwards. It ultimately defers rather than eliminates repayment obligations.
Why might I need a 12-month mortgage grace period?
Myriad scenarios can suddenly impact mortgage affordability, leaving families unable to cover their priority housing bill. Redundancy, bereavement, divorce, disability, or maternity impacts are unpredictable. Simultaneously, spiralling inflation and interest rates stretch household budgets without warning. Energy bills alone rose an average of £700 throughout 2022.
For marginal budgets, even tiny income drops or cost spikes can render mortgages unaffordable almost overnight. With average monthly repayments exceeding £800, many resort to credit cards and loans to get by. But increased borrowing is only sustainable in the short term before tipping into a debt spiral.
As mortgage arrears escalate in this situation, the home is threatened. Therefore, seeking a 12-month grace period is a lifeline for households experiencing financial shocks. It provides urgent breathing room to address their situation before repossession proceedings commence. Whether finding a new income stream, restructuring outgoings, or accessing more comprehensive support, 12 months facilitates a reasonable chance to regain stability. It brings less stress than legal claims and bailiffs arriving immediately during upheaval.
Lenders cannot actively pursue missed payment enforcement during a grace period. While shortfalls accumulate, obligations pause temporarily rather than intensify through punitive fees. This shrinks ultimate arrears if the term achieves its objective. So, for significant financial hardship, a 12-month grace period is often borrowers’ best or only way to avoid an imminent crisis.
How to apply for a 12-month mortgage grace period
The new mortgage charter applies consistently across Britain’s biggest lenders like NatWest, Barclays, and Santander. So, customers with these providers already enjoy their 12-month grace period commitment. Contact your existing lender explaining repayment difficulties and request activation of the arrangement straight away. The sooner you raise issues, the faster protection activates, and earlier resolution efforts can begin, too.
Under the policy, seeking support via lender assistance teams will not impact credit ratings. So, customers need not hesitate to reach out, even to discuss options if unsure initially. Lenders will request evidence of income loss plus any plans to improve sustainability. With approval confirmed in writing, borrowers can then action recovery efforts through the 12-month window.
What happens when the 12-month mortgage grace period is over?
A 12-month mortgage grace period brings temporary relief only. It ultimately defers rather than eliminates repayment obligations. So, viable next steps must launch when the grace period concludes, including:
- Resume regular payments: Ideally, the 12 months facilitate financial recovery, allowing full mortgage repayments to restart. This may require clearing deferred sums and interest accrued through the grace period via an agreed schedule first. With consistent instalments resuming, though, the mortgage can continue as initially planned in the long term.
- Adjust terms: Alternatively, lenders may permit revised terms like repayment extensions, product transfers, or interest-only periods for another six months without affordability checks. This allows appropriate restructuring aligned to new circumstances upon the grace period’s expiration.
- Remortgage: Switching providers could also enable more affordable arrangements like lower rates or better fees if household finances have altered. Brokers assist in navigation between products suiting updated situations following upheaval.
Crucially, lenders cannot commence repossession procedures within 12 months of initial arrears under the new policy. This allows homeowners to determine and prepare for the subsequent viable phases. Whether resuming former payments, adjusting existing terms or switching products, having an informed plan ready once temporary support ends is essential. Acting sooner maximises available solutions if original mortgages remain unaffordable longer-term post-crisis.
Ideally, the year’s grace empowers financial turnaround, making resumed payments sustainable. If not, urgent restructuring must activate immediately afterwards to avoid renewed default risk. Remortgaging costs also escalate for borrowers already behind on their current deal. Either way, utilise the grace period proactively to establish security for when it concludes. Going straight back into difficulty helps no one.
Does everyone offer a 12-month mortgage grace period?
While now an agreed industry baseline via the new mortgage charter, smaller building societies may still refuse similar grace period arrangements. Some mainstream lenders tighten temporary breach allowances during uncertain markets to limit risk exposure. So, while consistent 12-month respite applies across most significant providers, it is only guaranteed sometimes.
Explaining personal situations remains essential as lenders also wish to prevent repossession. Limited payment holidays or monitoring periods may be possible without formal grace periods. What matters is evading immediate crisis through open dialogue and then using whatever breathing space as grounds to build back affordability resilience. If issues escalate faster than lenders can respond, third-sector debt charities provide support until arrangements activate. But acting sooner maximises relief scope before enforcement escalates.
Pros and cons of the 12-month mortgage grace period
Pros
- Prevents repossessions: The 12-month grace period prevents lenders from immediately enforcing repossession procedures. This provides vital breathing room for financially vulnerable homeowners.
- Stalls arrears escalation: While shortfalls accrue initially during the grace term, they cannot spiral through compounding penalty fees. This limits ultimate default sums owed.
- Enables recovery: Crucially, 12 months facilitates a reasonable chance for households to address sudden income loss or budget impacts before facing repercussions.
- Allows restructuring: The grace period buys time to renegotiate mortgage terms or switch products better suited to updated financial situations post-crisis. This promotes longer-term repayment sustainability.
- Relieves stress: Removing imminent eviction threats or enforcement notices reduces anxiety for struggling families.
Cons
- Interest builds: A break in mortgage payments does not always include suspending interest, meaning interest will still build. Typically, homeowners will make interest-only payments, or if payments are completely paused, this could slowly inflate eventual repayment requirements.
- Hides actual costs: Temporary relief could encourage complacency rather than resolving underlying budget issues. If unaddressed, these resurface later.
- Admin pressures: Activating a grace period involves revealing financial troubles to lenders. This process can add strain for vulnerable homeowners who are already overwhelmed.
- Not indefinite: While essential, 12 months alone cannot correct long-term negative equity or fundamentally unaffordable mortgages. These require sustainable solutions, too.
On balance, preventing immediate repossession threats outweighs nominal interest payments or administrative burdens for most. However, homeowners should use the 12-month grace period advisedly to implement lasting payment resumptions or alternative arrangements before it concludes.
