The cost of living crisis means many people are feeling the pinch. And if you’ve got a mortgage, you could be feeling it that little bit more. Even though rates have fallen slightly in the last few months, they’re still much higher than they have been on average over the past decade. On top of that, around 50% of mortgage holders are expected to see their payments increase over the next three years.
The government recognises the problem at hand and has created a six-month interest-only mortgage scheme offering struggling homeowners financial help amid the challenging economic climate. A temporary payment adjustment in the form of interest-only mortgages aims to prevent a wave of repossessions while giving households breathing space to reorganise their finances.
Let’s take a look at how it works.
What is the 6-month interest-only mortgage scheme?
The six-month mortgage scheme allows homeowners with a repayment mortgage to temporarily switch to paying only the interest portion for six months with the aim of reducing their monthly payments. A government-backed initiative, it forms part of the Mortgage Charter agreements signed by major UK lenders in 2023 and extended through 2025.
Moreover, the arrangement doesn’t require a new affordability assessment and won’t affect your credit score. After the six-month period ends, your mortgage automatically reverts back to capital-and-interest repayments, with slightly higher monthly payments to account for the unpaid capital.
Who qualifies for the scheme?
The six-month interest-only option isn’t available to everyone, and lenders have specific requirements before approving applications. The scheme is designed to help homeowners facing temporary financial difficulties while making sure mortgage arrangements remain sustainable in the longer term.
To qualify, applicants must have:
- A residential repayment mortgage (not buy-to-let)
- Up-to-date on mortgage payments, with no arrears
- Mortgage term must still finish before expected retirement age
- Fixed rate deal shouldn’t end during the 6-month interest-only period
Most major financial institutions have committed to the scheme, including HSBC, NatWest, Hinckley & Rugby Building Society, and other high street banks. If your lender is part of the Mortgage Charter, you can apply directly through them without needing to switch providers.
How much could the scheme reduce your monthly payments?
The interest-only option can substantially lower your monthly mortgage costs during the six-month period. Exact savings will depend on your specific mortgage circumstances, but most homeowners see a significant reduction when the capital repayment element is temporarily paused.
Use Property Rescue’s interest only calculator to figure out what your monthly payment would be. Simply enter the amount you still owe on your mortgage, and your interest rate, and voila – you’ll see your new temporary monthly payment amount.
How to apply for the 6-month interest-only scheme
The application process is designed to be straightforward, with minimal paperwork compared to a standard mortgage application. You don’t need to undergo a new affordability assessment, and there’s no impact on your credit score when applying. Most lenders have streamlined the process to provide quick relief for eligible customers.
Contact your mortgage provider
Start by reaching out to your current mortgage lender through their dedicated mortgage support channels. Many banks now offer online application options through their banking apps or websites. You can also call their mortgage helpline or visit a branch to discuss your situation.
Complete the Mortgage Charter request form
Your lender will provide a specific form for requesting the temporary interest-only arrangement. You’ll need to confirm you understand how the scheme works and the impact it will have on your future payments. Some lenders might ask for basic information about your current financial circumstances.
Review the details before confirming
Before approving your request, your lender will outline exactly how your payments will change – both during the interest-only period and afterward. Take time to understand these figures, particularly how much your monthly payments will increase after the six months end.
Implementation timeframe
Once approved, the switch to interest-only typically takes effect from your next payment date. Your lender will confirm the exact dates when your interest-only period begins and ends, along with how your payments will be adjusted.
Risks and considerations
While the six-month interest-only scheme provides valuable temporary relief, it’s important to understand both the benefits and potential drawbacks before proceeding.
Immediate relief vs. long-term costs
The scheme offers substantial immediate financial breathing space by reducing your monthly outgoings. This, however, comes at a cost, and you’ll effectively pay more interest over the full mortgage term.
Higher payments afterward
When the six-month period ends, your monthly payments will increase to a level higher than your original payments. The capital you didn’t repay during the interest-only period gets spread across your remaining term. This happens because the length or the mortgage term does not increase, so to keep everything on schedule, the payments need to increase.
Not suitable for everyone
The option works best for those facing temporary financial struggles, who expect their situation to improve within six months. If your financial difficulties are more fundamental or long-term, different solutions like a permanent term extension or seeking debt advice might be more appropriate.
No impact on credit score
A significant advantage is that taking this option under the Mortgage Charter won’t affect your credit score or leave negative markers on your credit file. This protects your future borrowing capability while you manage current challenges.
Plan for when it ends
The most important consideration is ensuring you can afford the higher payments when the interest-only period concludes. Before applying, carefully review your budget and financial outlook for after the 6-month window closes.
Alternative support options if you’re struggling
If the six-month interest-only scheme doesn’t seem right for your situation, several other support options exist. Mortgage lenders are often committed to helping customers find sustainable solutions during financial hardship.
Extend your mortgage
Extending your mortgage term is one popular alternative. By lengthening your remaining term, monthly payments decrease immediately. The downside is significantly more interest paid over the life of the loan.
Remortgage
Switching to a new mortgage deal might help if you’re currently on a standard variable rate or your fixed rate is ending soon. Most lenders now allow customers to switch rates up to three months ahead of a current rate expiring without requiring new affordability checks.
Local support
If you have severe financial difficulties, support organisations like StepChange, Citizens Advice, and Money Helper offer free debt advice. They can help develop repayment plans, negotiate with lenders, and explore options like mortgage payment holidays.
Sell your home
If your financial situation has fundamentally changed and the mortgage has become unaffordable, selling your property might be necessary In such cases,. Property Rescue can buy your home fast, exchanging contracts in as little as 48 hours and get the lenders off your back for good. We also cover all the costs, including solicitor fees and valuations so you don’t have any upfront costs to get your house sold.
Choosing what’s right for you
Whether you choose the interest-only scheme or need a more permanent solution, the most important step is taking action early. If selling becomes necessary, get a free, no-obligation quote from Property Rescue to see how much your home is worth.