Working closely with trade bodies and the Financial Conduct Authority (FCA), mortgage lenders have strengthened forbearance provisions, offering temporary support to help borrowers. Examples available under the FCA’s mortgage rulebook in MCOB 13 include: mortgage term extensions, temporary interest-only payments, and more. Since the pandemic, forbearance arrangements have evolved, with a shift towards more tailored support and increased transparency in how they are reported to Credit Reference Agencies (CRAs). This blog explores these changes and what they mean for both mortgage lenders and borrowers.

Forbearance arrangements

In response to the COVID-19 pandemic, to aid mortgage customers facing financial difficulty, mortgage payment deferrals were introduced in March 2020. Building on this, the FCA introduced Tailored Support Guidance (TSG) in 2021. This Guidance set out the scope of arrangements available and how these would be reported to CRAs. The TSG required mortgage lenders to offer solutions based on the customer’s individual circumstances. 

Following a consultation period in summer 2023, the FCA published its policy statement and final rules ‘PS24/2: Strengthening protections for borrowers in financial difficulty’. This policy statement incorporated parts of TSG and widened the scope of MCOB 13 to include customers facing, and not just in, payment difficulty. The rules came into force on 4 November 2024.

In June 2023, the government introduced the Mortgage Charter. The Charter encourages those worried about affording their mortgage payments (but not already in arrears) to reach out to their mortgage lender. Unlike the rules in PS24/2, the Charter allows customers to self-select forbearance support. Though initially intended as a temporary measure, HM Treasury (HMT) has not confirmed any plans to withdraw it. While the Mortgage Charter offers similar forbearance options to those under PS24/2, a key distinction lies in the rules surrounding credit reporting and affordability assessments.

Credit files, affordability, and lending decisions

Forbearance measures can impact a customer's ability to borrow due to changes in a borrower’s credit score. When assessing affordability, mortgage lenders rely on three key tools: credit files, credit scores, and affordability assessments to meet their regulatory requirement to lend responsibly. 

Credit files, compiled by CRAs, track a borrower’s financial history, including any missed payments. This data is then used by CRAs to calculate credit scores, which estimate the likelihood of a borrower being able to repay new credit. However, mortgage lenders also conduct broader affordability assessments, taking into account income, expenses, and overall financial health. 

Mortgage Charter support does not require a new affordability assessment, nor will any arrangements under it be reported to CRAs. However, the new MCOB 13 rules require mortgage lenders to inform the borrower how they will report any proposed arrangements to CRAs. Moreover, in line with MCOB 11.6.1, affordability assessments are mandatory to ensure any forbearance arrangements are sustainable for the borrower’s financial situation. 

Under the new rules, mortgage lenders aim to address the underlying cause of a customer’s payment difficulties by offering tailored support based on their specific circumstances. In contrast, the Charter offers generic temporary relief to borrowers, and as the arrangements are not reported to CRAs, it risks concealing payment difficulties, potentially compromising lenders’ ability to lend responsibly.

If you are a borrower worried about your finances, it’s always in your best interest to make your mortgage repayments if you can afford to do so. However, if you’re worried about your financial situation, reaching out to your mortgage lender early will maximise your options. UK Finance’s Reach Out campaign highlights that talking to your mortgage provider will not harm your credit score, but missing a payment will. Don’t wait until you miss a payment - reach out today.