UK economy falls in October - what does it mean for you?

The UK economy shrank by more than experts predicted last month, according to figures out today from the Office of National Statistics (ONS).

The economy fell by 0.3% in October following a growth of 0.2% in September, with most experts predicting it would only contract by around 0.1%.

The fall is being blamed on consumers spending less because of high interest rates, combined with bad weather hitting the country in the form or Storm Babet.

A reduction in the service sector, which includes IT, legal and film production, and manufacturing and construction sectors all contributed to the downward trend.

The UK economy has been stagnant for some time, with flat growth being recorded in the three months to October. And things are not expected to pick up until January 2025.

However, October’s unexpected fall could be signal good news for homeowners, with the Bank of England now less likely to further hike rates when it meets tomorrow to review interest rates.

Interest rates are at a 15 year high of 5.25%. Up until September, the Bank of England had raised interest rates 14 times in a row to try to get inflation back under control.

Interest rates are expected to remain high for most of 2024 until inflation – currently at 4.6% - falls closer to the government’s target of 2%.

What’s inflation?

Inflation is a measure of how prices of goods and services are changing in the UK.  It can have a big impact on people’s household finances.

Each month the ONS publishes the latest annual inflation rate, which measures the change in price of regularly purchases products – known as the basket of goods and services – compared with the same time the previous year.

Some goods contribute more to the overall inflation rate than others – if some products see a larger increase in prices, while others stay more stable, then inflation would be driven by the changing prices in that spending category.

So, how the headline inflation rate affects your household depends on which products you tend to spend your money on.

What happens if you can’t afford your mortgage repayment?

If you miss two or more monthly mortgage repayments, you’re officially in arrears.

Your lender must make reasonable attempts to reach an agreement with you.

It’s crucial that you contact your lender if you’re struggling – the earlier the better. Don’t bury your head in the sand. Mortgage lenders are used to advising people who can’t afford repayments and have trained staff on hand to help.

What must your lender do?

Within 15 working days of falling into arrears, your lender must:

• tell you how much your arrears add up to
• list the missed payments
• say how much is outstanding on your mortgage
• state any additional charges that have been added to the amount you owe

Your lender must then consider any suggestions you make that could help you get back on track e.g. making lower payments for a while. They may also look at:

• switching you to an interest-only mortgage
• extending the term of your mortgage
• giving you a payment holiday
• helping you to sell your home so that you can repay your mortgage
• the government support available to help you pay your mortgage

Missed or reduced mortgage payments may be recorded on your credit file. This may make it harder for you to borrow.

Could I lose my home?

You may decide to sell your home if you can’t afford to make the repayments owed. In extreme circumstances, your lender could take court action to repossess it.

Repossessions are far rarer than they used to be.

There are lots of steps a lender needs to take before repossession. The whole process usually takes around two years.

If you’re struggling with your mortgage payments, get in touch with us for free independent debt help.

What’s the mortgage charter and how can it protect your home?

The UK’s largest mortgage lenders and the Financial Conduct Authority agreed with the government a set of standards that support homeowners with higher interest rates.

The charter sets out:

• Anyone worried about their mortgage repayments can contact their lender for help and guidance, without any impact on their credit file.
• Customers who are up to date with their payments can switch to a new mortgage deal at the end of their existing fixed rate deal without another affordability check.
• Lenders must provide well-timed information to help customers plan ahead should their current rate be due to end.
• Lenders must also offer tailored support to anyone struggling. This could mean extending their term to reduce their payments or offering a switch to interest only payments. They should also offer a range of other options such as temporary payment deferral or part interest-part repayment.
• Borrowers will not be forced to leave their home without their consent- unless in exceptional circumstances - in less than a year from their first missed payment.
• Homeowners approaching the end of a fixed rate deal will have the opportunity to lock in a deal up to six months ahead of it expiring. They’re also able to manage their new deal and request a better like for like deal with their lender right up until their new term starts.
• If a homeowner is on universal credit, they will receive help with mortgage interest payments after three months from the DWP.