The news: UK consumers can temporarily change the terms of their mortgages to lower their payments, per BBC.

How it works: The deal results from a meeting between Chancellor Jeremy Hunt and UK lenders.

• Mortgage consumers can discuss mortgage repayment flexibility with their bank or building society. Struggling consumers will be allowed to pay just the interest on their home loans for up to six months.
• After six months, consumers will be able to return to the original terms of their mortgage. The temporary payment reduction won’t affect consumers’ credit.
• But consumers who miss a payment, or opt to take a payment holiday, will still see their credit affected.
• The banks have also agreed to delay for up to 12 months their repossession proceedings against consumers who don’t make mortgage payments over the long term.

An even tighter squeeze: The UK cost-of-living crisis continues to rear its head, putting immense pressure on consumers.

• Inflation remains persistently high, sitting at 8.7% in May.
• In its fight against inflation, the Bank of England bumped up interest rates from 4.5% to 5% at its last policy meeting. Despite the move, bank governor Andrew Bailey admitted the increase would cause “difficulty and pain” for many consumers.
• The mortgage space has been hit particularly hard. The average two-year and five-year fixed mortgage rates sit at 6.19% and 5.82%, respectively. Just one year ago, those rates were around 3%, per Moneyfacts. UK Finance estimates that roughly 800,000 consumers will need to refinance their mortgages this year, and another 1.6 million will next year.

Proponents and opponents:

• Supporters of the plan believe it will lighten the financial burden on many UK consumers just as their budgets will feel the most pain.
• But others see the move as counteractive to the government’s anti-inflation policies. While the government is attempting to curb consumer spending, it’s simultaneously cushioning consumers’ discretionary income.

The repayment slowdown doesn’t appear likely to hurt lenders too badly. Many banks have been slow to pass on higher interest rates to instant-access savers. Though the move has been highly criticized, it undoubtedly helps their bottom line.

The big takeaway: Banks’ willingness to comply with the mortgage plan is likely to please their customers. For months, UK consumers have been calling on their financial institutions to help them weather the economic downturn.

Some banks have stepped up by offering budgeting tools and cash-back incentives to mortgage customers to make their homes more energy-efficient. Additional mortgage relief will surely be appreciated—especially since it’s estimated that consumers who refinance their mortgages next year will end up paying up to £2,900 ($3,411) annually.

This article originally appeared in Insider Intelligence’s Banking Innovation Briefing—a daily recap of top stories reshaping the banking industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.

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