Banks make major changes to mortgages to help households struggling with interest rate hikes including payment holiday

CHANCELLOR Jeremy Hunt and banking chiefs today agreed a package of measures, including mortgage payment holidays, to help households struggling with brutal interest rate hikes.

From today all homeowners will be able to temporarily change their mortgage to interest only and extend the terms of the their loan.

No questions will be asked of those wanting to switch and there will be no impact on credit scores.

If homeowners then want to go back to their original plan within six months they will be free to do so.

Again, no questions will be asked and there will be no impact on credit scores.

Households can also now seek advice from their bank or mortgage lender if they are struggling and this will also have no impact on their credit ratings.

Bankers will need to ensure tailored support is given to anyone struggling and deploy highly trained staff to help customers.

Help could involve reducing payments, a temporary payment deferral or part interest-part repayment.

Finally, in the extreme situation of a repossession, there will be a minimum 12 month period before a house can be taken away without the owners' consent.

The Chancellor said: "We agreed some very important things for people who are worried about their rates going up - not just people who are in an extreme situation.

"The most significant thing is homeowners can pick up the phone to their bank or their mortgage lender and talk about their situation without any worry that it will impact their credit score."

He added: "If households decide to make their payments easier by extending the period of their mortgage or by going to an interest only package, they can go back to their original package without any questions asked within six months.

"That's the reassurance that people like Martin Lewis have been saying will make a big difference to families in tough situations."

Mr Hunt and banking bosses agreed the package at a meeting in Downing Street this morning.

The Chancellor pressed the chiefs to ensure they're doing everything they can to help hard-up homeowners.

Among those at the meeting were CEOs of Lloyds, Santander UK, Nationwide, Barclays UK, NatWest, HSBC and Virgin Money.

Martin Lewis, who had called on Mr Hunt to act, welcomed the package.

He said: "I met the Chancellor on Wednesday and reiterated that the minimum we needed was to ensure that when people asked for help from lenders, they knew that if things changed, it wouldn’t be detrimental to their financial situation and their credit scores would be protected as much as possible.

“I’m pleased to see it looks like the Chancellor has listened."

It comes as the Bank of England yesterday hiked interest rates by 0.5% to a staggering 5%, the highest level since September 2008.

The rise was imposed in an effort to curb stubborn inflation, which is sitting at 8.7% for the second month in a row.

Rapid interest rate rises have placed homeowners under huge pressure, with many arguing they can no longer afford their house.

The average rate on a two-year fixed deal has now soared to 6.01 per cent.

And a typical five-year fixed deal is 5.67 per cent.

Meanwhile, research from the Institute for Fiscal Studies found 1.4 million people are set to lose 20% of their disposable income.

On average, mortgage holders will see repayments hiked by £280 per month – equivalent to 8.3% of disposable income.

And the biggest rise will hit homeowners in their 30s, with payments jumping by £360 per month, or 11% of disposable income.

Both Rishi Sunak and Mr Hunt have ruled out direct cash boosts to help with mortgages.

They insisted this would put them at odd with the Bank of England and its mission to drive down price spirals.

The Chancellor said: "To everyone who is worried about the high inflation that we have in this economy, tackling high inflation is mine and the Prime Minister's number one priority.

"We are absolutely committed to supported the Bank of England, to doing what it takes."

He added: "We know the pressure that families are feeling. That's why we've introduced big support packages around £3,000 for the average household this year and last.

"But we will do what it takes and we won't flinch in our resolve."

Bank of England chief Andrew Bailey has faced fury from Tory MPs over his handling of inflation.

John Baron said: “Consumers and households are paying the price for the Bank of England being asleep at the wheel.”

Brendan Clarke-Smith added: “I hope for everybody’s sake the latest move works because people are now not only questioning the Bank’s independence, but also their leadership.”

The governor, battling to bring inflation under control, said the country “can’t continue to have the current level of wage increases”.

Mr Bailey, whose salary £575,000, also issued a warning to businesses, saying: “We can’t have companies seeking to rebuild profit margins which means prices continuing to go up at their present rates.”

Ex-Cabinet Minister Jacob Rees-Mogg raged: "The Bank of England has failed, does it still deserve to be independent?" 

Former Cabinet Minister Sir Jake Berry told LBC: “My own personal view is that the Bank of England has been asleep at the wheel.

“They have lots of jobs but their main job from government is keeping inflation below 2 per cent.

“They clearly have reacted too slowly to this inflationary pressure.”