The meeting, which took place yesterday afternoon (December 7), prompted the Financial Conduct Authority to publish draft guidance for lenders on how they can support borrowers, including varying a contract to give more forbearance options.
Typically, forbearance is when a borrower temporarily pays less of, or pauses, their mortgage repayments.
We expect every lender to live up to their responsibilities and support any mortgage borrowers who are finding it tough right now.Jeremy Hunt, TreasuryWith some 1.8mn borrowers set to remortgage next year, many of whom will have been on cheaper interest rates, there are concerns that repayments could become unaffordable.
If more lenders offered a varying contract option, this would allow these borrowers to switch from a repayment mortgage onto an interest-only basis for all or part of its term, or to extend their mortgage term into retirement.
The FCA’s rules also allow lenders to switch borrowers up-to-date with payments onto new interest rates without an affordability assessment, which could also allow them to reduce payments.
Lenders have until December 21, 10 working days, to send in their responses to the FCA on its guidance.
The regulator also said lenders can use automation and digital tools to provide forbearance at scale.
It suggested lenders automate the process of asking borrowers to provide information on their circumstances, including their income and expenditure.
“Firms should have policies, procedures and controls in place to avoid agreeing inappropriate forbearance arrangements with customers who may have more complex needs,” the FCA.
“[This includes] those who may be in more vulnerable circumstances due to physical or mental illness, unemployment or other characteristics of vulnerability.”
The FCA said it will consider if there are further steps it can take to help firms to support their borrowers, including at scale.
In the meeting yesterday, Hunt said global factors are driving inflation in the UK and his number one priority was to do what he can to bring it under control.
“UK lenders have a part to play in that. We expect every lender to live up to their responsibilities and support any mortgage borrowers who are finding it tough right now,” said Hunt.
At the meeting, bank chief executives covering more than 70 per cent of the mortgage market made a series of recommitments to protect mortgage holders.
This included:
- Enabling them to switch to a new fixed rate mortgage, without a new affordability test, when their current deal ends if consumers are up-to-date with their payments, a category which accounts for some 97 per cent of the market;
- Providing them with well-timed information ahead of any change to rates;
- Offering specific help to those who start to struggle with payments, for example by extending the term of the mortgage to make monthly payments lower, a short term reduction in monthly payments or accepting interest-only payments for a period; and
- Ensuring highly trained and experienced staff are on hand to help.
The government also confirmed action to make Support for Mortgage Interest, which helps homeowners on certain benefits pay interest on loans or mortgages, easier to access.
If borrowers are on universal credit, they could also be eligible to receive help with their mortgage interest payments after three months.
Hunt also said his government was providing “record levels” of funding for the Money and Pensions Service to provide debt advice in England.
Rates falling
Mortgage lenders have gradually been reducing interest rates over the past month following former prime minister Liz Truss’ "mini" Budget which sent swap rates, and in turn interest rates, soaring.
Average interest rates on two-year fixed rate mortgages peaked at around 6.5 per cent in October, according to Moneyfacts.
But now, with swap rates stabilising, a handful of lenders have launched sub-5 per cent deals.
Chief executive of Nationwide Building Society, Debbie Crosbie, said the mutual had reduced rates for those reaching the end of their deals so they can access a fixed rate below 5 per cent, regardless of loan-to-value or tenure.
“For additional support, our options include term extensions and forbearance tailored to individual circumstances,” she said.
ruby.hinchliffe@ft.com
