The Financial Conduct Authority is keeping a close eye on mortgage lenders and their treatment of borrowers who have fallen behind on repayments due to the cost of living squeeze and recent peaks in interest rates.
The City watchdog said today (February 6) it had seen some mortgage lenders being more proactive in an effort to avoid their most at risk customers from falling into arrears.
But in other cases, the regulator has had to step in.
In November, the FCA said it had told 32 lenders - half of the 65 it had reviewed - to make "material and significant changes" to their processes following their dealings with customers during the pandemic.
This prompted seven lenders to pay £12mn in compensation to nearly 60,000 customers.
Just 15 of the lenders the FCA reviewed had "sufficiently explored customers' specific circumstances", which meant repayment agreements were often unaffordable and unsustainable.
This led the regulator to conclude that mortgage and credit lenders alike "need to do a lot better".
The FCA's executive director for consumers and competition, Sheldon Mills, said: "We’ve seen lots of examples of good practice of this, for example, firms contacting borrowers when issues are on the horizon.
"But we are supervising firms closely and intervening where we are concerned that they are not acting in their customers’ interests."
Rising energy bills, higher interest rates, stagnated wages and 10.5 per cent inflation have all driven up cost of living in the UK.
"Families that would once have described themselves as comfortable are bracing themselves as they face higher mortgage or rental costs," said Mills.
"Firms should be stepping up now to support customers in these tough times. We expect the lenders we oversee to work constructively with those who fall behind in payments, or are at risk of doing so, so tailored support can be put in place.
"When lenders communicate with borrowers in financial difficulties, they should consider whether it would be appropriate to reduce, waive or cancel fees and charges."
Last month, the Treasury committee published a note from the FCA which suggested "close to 200,000" households had fallen behind on payments by June last year, and a further 570,000 households are at risk of falling short on payments over the next two years.
Those who bought new build flats five years ago with Help To Buy loans have been dubbed "the first to be hit" by arrears, because their loans are linked to inflation which has peaked over the past year.
Second charge mortgages holders and those with buy-to-let mortgages in high house value areas like the south east have also been highlighted as potential shortfall risks by brokers.
BNPL threat
Last week, Mills said he convened a roundtable with senior representatives of the UK Regulators Network, which spans 13 regulators including the The Pensions Regulator.
The FCA director said the roundtable explored what else regulators can do to improve outcomes for consumers in debt as rising costs continue to impact their budgets.
The regulator is particularly concerned about buy now, pay later products, which allow consumers to own products before they have paid for them.
Despite not having regulatory oversight of buy now, pay later firms, the FCA has made changes to certain firms' repayment contract terms and warned firms about misleading advertising.
The government is currently working on draft legislation to bring buy now, pay later products within the scope of the FCA.
In the past, brokers have highlighted the risks buy now, pay later poses to prospective home buyers and their credit histories.
Back in July 2021, advisers warned first-time buyers needed to "change their mentality" to debt as the growth of buy now, pay later made affordability checks more awkward.
Pay back arrangements such as the ones BNPL providers offer at checkout count as expenses. If, added together, a potential borrower’s expenses make a mortgage unaffordable, then the lender cannot issue them that particular mortgage.
Together with credit cards and other forms of debt, this means BNPL can affect a borrower's mortgage application.
One broker said they had a 40-year-old client with 20 items of finance including credit cards and car loans as well as buy now, pay later loans.
ruby.hinchliffe@ft.com
