FCA moves fast to let firms provide mortgage breathing space
The City regulator says it has moved quickly to make rulebook changes, to help give households some relief from rising mortgage rates.
The Financial Conduct Authority (FCA) said lenders should make the options available to borrowers clear and accessible.
Sheldon Mills, executive director for consumers and competition at the FCA, urged homeowners who are struggling with their mortgage, or believe they might have difficulties, to speak to their lender.
Chancellor Jeremy Hunt held a summit with mortgage lenders on Friday last week and a new mortgage charter was agreed to support those who are struggling.
Lenders will be able to offer borrowers a switch to interest-only payments for six months, and an extension to their mortgage term to reduce their monthly payments, with the option to switch back within six months.
Both options can now be offered without an affordability check.
A borrower 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.
The FCA said the measures are designed to provide relief for people dealing with higher interest rates, but it added that borrowers should be aware that making changes, even temporary ones, will very likely result in higher monthly payments in the future or paying back more overall.
To meet the commitment made in the Government’s charter, lenders should make these options accessible, the regulator said.
It is important they provide clear information on the impact taking these options might have, including on changes to future payments, in line with FCA rules, it added.
The charter also makes commitments relating to borrowers’ credit scores.
Engagement is ongoing between government, lenders, credit reference agencies, and the FCA to agree how this can be implemented, the regulator said.
Around 2.4 million fixed-rate mortgage deals are due to end between now and the end of 2024, according to figures from trade association UK Finance.
Figures released by Moneyfactscompare.co.uk on Friday showed the average five-year fixed-rate homeowner mortgage is sitting just below 6%, with the average two-year fixed-rate mortgage having already topped 6% for the first time in 2023 earlier in June.
The average two-year fixed residential mortgage rate on Friday morning was 6.39%, while the equivalent five-year deal was 5.96%.
Stubbornly high inflation has fuelled expectations that interest rates will be higher for longer.
The Bank of England uses base rate rises as a tool to try to subdue inflation and the base rate rose from 4.5% to 5% last week.
Mr Mills said: “Last week’s summit built on the substantial work the FCA has previously carried out to prepare for a higher interest rate environment.
“If you can keep up with your mortgage payments, you should, as changing your contract could lead to higher payments down the line.
“But if you are worried about making your payments, contact your lender as soon as possible as they have a range of options to help.
“Regulation cannot stop rates from rising, but the wider measures we’ve put in place over the past decade will make sure people get the support they need, when they need it.”
Asked by the PA news agency what advice he would give to someone who is struggling with their mortgage payments right now, Mr Mills said: “It’s really important, if you’re struggling with your mortgage payments, or expect to do so, to speak to your lender.
“Speaking to your lender does not affect your credit file. So do pick up the phone or write an email or find the best way to contact your lender. And they should be able to help and support you.”
Although arrears and repossessions currently remain low, lenders need to demonstrate how they are preparing for a rise in borrowers experiencing financial difficulty and the action they are taking to support them, the FCA said.
Mr Mills added: “This already builds on work that we’ve been doing with lenders through the pandemic and before that, to ensure they’re offering forbearance measures to customers who are either struggling or may be expected to struggle with their mortgage repayments.”
He said that as the base rate and interest rates have increased: “We’re even more closely monitoring the mortgage market and monitoring pricing in that market.
Whilst we are not a pricing regulator, so we can’t tell lenders what rates to offer on their mortgages, we do expect them to offer value to their customers and we also do expect them, when customers are struggling, to look after those customers, so through our supervisory efforts, we’ll be monitoring what firms do.”
Mr Mills added that if the regulator finds that lenders do not have the right systems, processes and staff and are not offering opportunities to their customers: “We will take up that with lenders, speak with them, but in certain cases we can take action against them.”
Mortgage lenders must provide customers with tailored support if they are worried about or already struggling with their mortgage payments.
Lenders have proactively contacted customers around 16.5 million times to discuss support options, with this figure expected to rise to more than 20 million over 2023.
The FCA said it has also seen more than two million customers provided with active support by their lenders to manage their finances. This includes budgeting tools, debt advice and, in some cases, mortgage forbearance, such as reduced payments, lengthened loan terms or switch to interest-only.
A new consumer duty, which takes effect at the end of July, will also mean lenders must offer support that meets a customer’s individual needs, communicate clearly with people about their options and provide decent customer service.
Mr Mills said: “The consumer duty asks firms to reach a higher standard of consumer care and protection for customers and to provide them with good outcomes.
“In relation to mortgages, what it means is that mortgage lenders should be proactive with their customers.
“So if they see that customers are struggling with payments or if they can see that people are struggling with their finances, they should have communications with those customers, customers should understand how they can contact their lender and they should be able to speak with their lender, and their lender should provide them with, as best they can, individualised support for their needs.”
Press Association – Vicky Shaw