FCA announces help for struggling mortgage borrowers

The Financial Conduct Authority (FCA) has confirmed final mortgage guidance, setting out the ways mortgage lenders can help customers worried about or already struggling with their mortgage payments because of the rising cost of living.

The regulator has also published new data and analysis on the mortgage market. This shows that, in addition to the households already behind on payments, 356,000 mortgage borrowers could face payment difficulties by the end of June 2024. This is down 214,000 from the 570,000 borrowers the FCA previously estimated in September last year due to changes in market expectations of the Bank of England base rate. Amongst this group those rolling off a fixed rate deal could end up paying an additional £340 a month on average.

The FCA’s research found that borrowers aged 18-34 are more likely to be financially stretched than the rest of the working age population. Those living in London and the South East are most likely to be stretched. 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.

As well as contacting their lender for support, worried borrowers can also visit MoneyHelper for useful money tips, budgeting tools and to find free, expert debt advice.

The FCA, major lenders and consumer representatives attended a mortgage summit hosted by the Chancellor in December. Since then, the FCA has continued to work with lenders to make sure borrowers get the support they need, including timely communication.

Lenders proactively contacted customers a combined total of 16.5 million times, across a range of channels, to offer support in the last year. Following conversations with the FCA lenders have confirmed they expect to increase this to 20.5 million contacts over the next year.

Lenders supported over 2 million customers to manage their finances in the past year, including through budgeting tools, access to debt advice, and tailored mortgage forbearance.

The FCA is also 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.

The FCA expects firms to support borrowers in financial difficulty. Its finalised guidance confirms how mortgage lenders can support customers who have missed payments or are worried they may not be able to make payments in future. It covers options such as extending the term of their mortgage or making reduced monthly payments for a temporary period.

Making changes, even temporary ones, may result in higher monthly payments in future or paying back more overall. Mortgage borrowers should consider carefully any steps they take and customers who can keep up with their payments should continue to do so.

The publications build on work the FCA has already done to make sure firms treat customers fairly and support those struggling financially due to the rising cost of living.

In line with its three-year strategy, the regulator has previously reminded firms of the standards firms should meet to support struggling borrowers and where they need to improve their treatment of those in financial difficulty. This follows on from the swift action the FCA took during the pandemic to protect borrowers, including introducing its tailored support guidance.

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.”

Jane Tully, Director of External Affairs and partnerships at the Money Advice Trust said “Today’s guidance from the FCA is welcome and the regulator is right to expect lenders to play their full role in supporting customers who are struggling. It is vital that mortgage lenders ‘get ahead’ of this problem, including proactively offering support to those worried about their repayments.”

“As cost of living pressures continue to mount, however, the regulator may need to go further – with lenders required to offer longer-term forbearance,
beyond what is currently available, where necessary.

Sarah Coles, Head of Personal Finance at Hargreaves Lansdown said “We’re seeing a rising tide of mortgage distress this year, as higher rates plunge borrowers into financial hot water.”

“The FCA has published guidance showing how lenders need to support people in this position, and is encouraging borrowers to ask for help. It also published figures showing the scale of the problem, reflecting the horrible issues our own research has uncovered. The FCA has found that 356,000 more people could face payment difficulties by the end of June 2024. This reflects findings from the HL Savings and Resilience Barometer, which identified that 2 million people could be at risk of arrears by the end of the year. ”

“The Barometer also allows us to look at the finances of those in this position, and the findings are even more alarming. 650,000  are at ‘high risk’ because they are not only facing a dangerous hike in their mortgage payments, but they don’t have enough emergency savings to protect them. Meanwhile, 347,000 are at ‘critical risk’, because on top of the mortgage hit and lower savings resilience, they are spending more cash each month than they have coming in.  Like the FCA, we found that Londoners are more vulnerable – with 39% of those remortgaging this year being classed as at risk. Those in the south east aren’t much better off with more than 30% at risk. House prices in these areas shoulder the bulk of the blame, forcing buyers to spend a significant chunk of their income servicing their debts.”

“We also found that singletons were three times more likely to be at high risk and more than five times as likely to be critical risk than couples, and that baby boomers with mortgages also face huge challenges: they’re one and a half times as likely to be at high risk and twice as likely to be at critical risk.”