Guidance for firms supporting their existing mortgage borrowers impacted by the rising cost of living – response from UK Finance

The industry welcomes the Financial Conduct Authority’s (FCA) guidance for firms supporting their existing mortgage borrowers impacted by the rising cost of living (the Draft Additional Guidance). Clarification of existing guidance and rules is useful given that expectations on forbearance and impairment is contained in various thematic reviews, ad-hoc guidance, and market studies published over many years by the FCA and its predecessor, the Financial Services Authority (FSA).

The current economic environment is not temporary – interest rates are normalising at a new level and lenders will continue to support borrowers. Although mortgage arrears remain low, lenders recognise the key role that they play to support borrowers facing increased costs due to inflation, rising energy bills or higher monthly mortgage payments. Lenders are keen to work with all stakeholders to help educate and provide budgeting tools to borrowers who may not have previously experienced a rising rate environment. The FCA’s recently produced information page for those dealing with the financial impact of rising costs of living is welcomed and well received by the sector. Money guidance and debt advice are important, as this will help customers to determine the appropriate financial choices they might need to make to adjust to the ‘new normal’ economic environment. 

The industry supports the FCA’s position that firms should not take a ‘one-size-fits-all' approach for those at risk or unable to make their full mortgage payment – tailored forbearance remains appropriate. It will always be in a borrower’s best interests to pay some, or all, of their mortgage if they can, as this will reduce their level of repayments in the long run. The Covid-19 Payment Deferral Scheme was a temporary measure, designed to fill the gap before the government’s Job Retention Scheme was implemented. This one-off response was a successful solution for a defined period. Pressures on borrower’s budgets due to the rising cost of living do not have a clear end point.

Temporary measures should not simply delay or shift payments to other (priority or non-priority) debts. Varying a mortgage contract to reduce mortgage payments cannot continue indefinitely. Similarly, providing prospective forbearance too early bears the risk of over-forbearance and, ultimately, increases the possibility of possession if the mortgage becomes unsustainable.

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