Struggling borrowers could be moved to interest-only mortgages says financial watchdog
The City watchdog The Financial Conduct Authority (FCA) has released guidance on how firms could support existing mortgage borrowers and opened the guidance up for consultation.
As the cost-of-living crisis bites, the FCA has issued guidance to lenders on how they can help borrowers experiencing difficulties in repaying their mortgages. The regulator said that to “ensure we can act quickly to enable firms to help consumers”, it would consult on this guidance over the next 10 working days.
The FCA’s current guidance states that if a customer indicates that they are experiencing payment difficulties due to the rising cost of living, firms should offer “prospective forbearance” to help them “avoid, reduce or manage any payment shortfall that would arise”. It added that this includes customers who have not yet missed a payment.
Forbearance means that your mortgage lender will let you pause or reduce your mortgage payments for a limited time while you restore your finances.
Types of forbearance measures include concessions on monthly installments, contract variations such as term extensions and temporary switches to interest-only.
However, the regulator acknowledged that not all firms would be able to offer contract variations. It also reiterated that companies needed to be able to justify why a certain forbearance option was offered and that customers needed to be given “adequate information” to understand the implications of any proposed arrangements.
Firms can vary or replace an existing contract
The regulator said firms can provide information digitally but the firms should acknowledge that some may find “digital interactions difficult” and adopt a multi-channel approach.
The FCA added that firms can offer contract variations to borrowers wanting to lower monthly payments but did not require forbearance. It said that a company could vary or replace an existing contract without undertaking an affordability assessment if there is no additional borrowing or changes to its terms that could materially impact affordability. This includes interest rate switches, term extensions and variation to interest-only.
The FCA said: “The purpose of this guidance is to ensure firms are clear about the effect of our rules and the range of options they have to support their customers who are facing higher interest rates alongside other cost-of-living increases.
“We will continue to engage with firms to monitor how they are providing the support borrowers need and the outcomes they receive. We will consider if there are further steps we can take to help firms to support their borrowers.”
If you are struggling to pay with mortgage repayments, you are advised to contact your lender as soon as possible so they can work with you on a plan as outlined in the guidance above.