Regulator changes rules to help lenders support mortgage borrowers
The Financial Conduct Authority (FCA) has edited its rulebook to help lenders adapt mortgage products taken out by borrowers as interest rates rise.
Suggestions made at the Chancellor’s summit last week will enable lenders to offer borrowers a six-month switch to interest-only payments or an extension to their mortgage term to decrease monthly payments. Borrowers will have the option to change back within six months.
These options can be offered without affordability checks.
These latest changes have been created to support those struggling with interest rate hikes. Lenders who have signed up, including Santander, Virgin Money, and TSB, should make these changes accessible, the regulator said. They must also clearly explain the impact of changes on the borrower such as the likelihood of higher future payments or even paying back more overall in line with FCA rules.
Commitments have also been made regarding borrower’s credit scores, but discussions are ongoing between parties to define how it is implemented.
Arrears and repossessions are low, but lenders are yet to demonstrate how they are preparing to provide tailored support for customers who are struggling with the cost of living.
Since the FCA sharpened its scrutiny on lenders, customers have been contacted 16.5 million times to discuss support options. These figures are expected to rise by another four million by the end of year.
Over two million customers have received active support from lenders with budgeting tools, debt advice and, in some cases, mortgage forbearance, such as reduced payments, lengthened loan terms or switch to interest-only.
All this is bolstered by Consumer Duty requiring lenders to provide appropriate and clear support to meet the needs of their customers from the end of July.
Sheldon Mills, executive director for consumers and competition at the FCA, 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.”