350,000 people may struggle to pay mortgage by mid-2024
The majority of homeowners are keeping up with their monthly mortgage payments amid the current cost-of-living crisis, high inflation and the consecutive Bank of England base rate hikes.
But analysis of the mortgage market by the financial watchdog, the Financial Conduct Authority (FCA) highlighted that 356,000 borrowers may struggle to meet payment commitments by the end of June next year.
However, this figure is down by 214,000 from its previous estimate of 570,000 at risk of missing mortgage payment quoted in September last year.
The FCA said this revision was due to “changes in market expectations of the Bank of England base rate”. It currently stands at 4%, but was predicted to peak to 5.5%. However, it is now forecast to rise to 4.5% by mid-2023 before falling back to 3.25% in three years’ time.
Among the group who potentially face missed mortgage payment are those who will roll off fixed rate deals.
These borrowers have been protected from the base rate hikes but according to UK Finance, 1.8 million fixed mortgage deals are due to expire in 2023. The FCA warned these homeowners could end up paying an additional £340 a month on average.
Its research also revealed that borrowers aged 18-34, living in London or the South East are more likely to be financially stretched than the rest of the working age population. “Being stretched does not necessarily mean borrowers will miss payments as some will be able to use savings, reduce spending, or increase incomes to help meet their mortgage commitments,” the FCA added.
Guidance to help struggling mortgage borrowers
Despite the more positive outlook compared to six months ago, the FCA has today published final mortgage borrower guidance for lenders, setting out how they should help borrowers who are struggling to meet payments.
It noted that lenders proactively contacted customers a combined total of 16.5 million times, across a range of channels, to offer support in the last year.
However, following conversations with the FCA lenders said they expect to increase this to 20.5 million contacts over the next year.
As part of the final guidance, forbearance is key, but the FCA said it would not be “appropriate or practical” to define forbearance, with firms urged to focus on providing suitable help for customers based on their personal circumstances.
This could include accepting a temporary or permanent move to interest-only mortgages (where appropriate), interest rate switches, mortgage term extensions or making reduced monthly payments for a temporary period.
It stated: “The guidance is clear that a firm should offer prospective forbearance if a mortgage borrower indicates that they are experiencing or reasonably expect to experience payment difficulties due to the rising cost of living.
“When providing forbearance firms need to demonstrate they are acting fairly, in accordance with a customer’s best interests, and that any arrangement is appropriate given a customer’s individual circumstances.”
It also expects firms to provide all customers with an appropriate level of care and support, paying particular attention to those showing signs of vulnerability. Elsewhere, lenders should help borrowers access money guidance or free debt advice.
Further, firms should ensure that any fees and charges levied on borrowers because they are in payment shortfall are fair and “do no more than cover a firm’s costs”, while any lender fees for varying a contract or fees for advice should be disclosed before proceeding.
‘You don’t need to manage alone’
Sheldon Mills, executive director of consumers and competition at the FCA, said: “Our research shows most people are keeping up with mortgage repayments, but some may face difficulties.
“If you’re struggling to pay your mortgage, or are worried you might, you don’t need to manage alone. Your lender has a range of tools available to help. Get in touch as soon as you have concerns, don’t wait until you’re about to miss a payment before doing so. Just talking to them about your options won’t affect your credit rating.”
The FCA said it is working with the Money and Pensions Service, consumer groups and lenders to raise awareness of the help available to mortgage borrowers worried about keeping up with payments. It added it will continue to monitor the mortgage market and how firms are supporting their customers.
Related: ‘Repossession’ is a last resort: Five options if you’re struggling with your mortgage.