On 10 April 2024, the Financial Conduct Authority (FCA) published PS24/02 - Strengthening provisions for borrowers in financial difficulty. These new rules build on its Tailored Support Guidance (TSG) and widen the scope of Chapter 13 of the Mortgages and Home Finance: Conduct of Business sourcebook (MCOB 13).   

Reflecting UK Finance's Reach Out campaign, the new rules support the message that, the sooner a borrower engages with their lender, the better the outcome that can be achieved. 

What are the key changes for mortgage firms? 

When the new rules come in to force on 4 November 2024, the expectation is that firms must consider solutions that are appropriate for the customers individual circumstances. Firms should review the forbearance they offer to borrowers in financial difficulty on a regular basis ensuring they deliver good outcomes based on the individual circumstances of the borrower.  

It was pleasing to see that, in line with our consultation response, the definitions for ‘payment shortfall’ and ’arrears’ remain unchanged. 

Some of the key changes for mortgage firms include: 

• Expanding the scope of MCOB 13 to support customers who become known to a firm as potentially facing financial difficulties  

• The requirement to detail a non-exhaustive list of forbearance options in a prominent place on a firm’s website 

• Informing the customer how any proposed forbearance arrangement(s) will be reported to Credit Reference Agencies (CRAs) 

• The new forbearance option to waive capital and/or interest 

• The need to appropriately, and regularly review forbearance options  

Transparency of options 

The FCA hopes that by firms providing greater transparency of the forbearance options available, borrowers in financial difficulty will engage with their lender earlier. It is worth noting that the wording requires lenders’ websites to display what forbearance options they may consider, based on an individual’s circumstances.  

The rules clarify the way in which lenders should communicate the impact any proposed forbearance arrangement could have on a borrower’s credit file. For example, capitalising arrears over the remaining mortgage term (say ten years) or repaying them over, say three years. 

When to waive money owed 

The option for lenders to waive capital and/or interest is not mandatory, and firms retain the right to use this at their discretion, depending upon the individual circumstances of the borrower.  

Concluding forbearance 

Under the new rules, all forbearance options should be reviewed at appropriate periods to ensure they remain suitable. The FCA expects firms to take a balanced approach when applying time restraints to forbearance and to offer flexibility based on the customer’s circumstances. Firms should consider ending forbearance when it becomes apparent the mortgage will not be repaid during the mortgage term, or where they see escalating balances.   

Questions on the new Policy Statement 

The mortgage industry has a unique opportunity to hear more on the PS24/2 and some of the reasons for the rule changes at UK Finance’s Annual Mortgage Conference on 25 April 2024. Thomas Francis, the FCA’s Policy Manager who led the work on the new rules will present on the origins on the consultation, how the various responses considered and how they landed on the new rules.  

You can find out more on the conference agenda, and how to book your place here.  

I hope to see many of you there in person.