Lenders must now have tools available to help mortgage borrowers who have missed payments or may be unable to meet their repayments in the future.
Solutions could include extending the term of their mortgage or making arrangements for the borrower to reduce their monthly repayments for a temporary period.
Ultimately, the aim of the guidelines, which have been confirmed today by the financial regulator, the Financial Conduct Authority (FCA), is to relieve pressures on those struggling with rising costs.
It is urging anyone who is worried about not meeting their mortgage repayments to speak to their lender as soon as possible so they can find a way forward.
If you are struggling, you will most certainly not be alone. The FCA said in addition to the households already behind on payments, 356,000 mortgage borrowers could face payment difficulties by the end of June 2024.
It said, amongst this group those rolling off a fixed rate deal could end up paying an additional £340 a month on average.
It was originally estimated as many as 587,000 would face difficulties, so today’s figures are an improvement. But they are still high enough to drive the FCA to formally issue the guidelines for lenders.
Borrowers facing financial difficulties ‘don’t need to manage alone’
The FCA’s research found that borrowers aged 18 to 34 were most likely to be financially stretched than the rest of the working age population.
It said those living in London and the South East were under the most pressure.
Sheldon Mills, of the FCA, said: “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.”
The confirmation of these guidelines to lenders has been welcomed by the mortgage industry.
Kellie Steed, Uswitch.com mortgage expert, said: “This is promising news for people who are already, or expect to be, looking to their mortgage lenders for support in the coming months.”
Meanwhile, Charlotte Nixon, mortgage expert at Quilter explained more about the kind of support customers could expect to receive. She said the measures lenders would use were known as ‘forbearance’.
“Forbearance refers to a temporary agreement between a lender and a borrower in which the lender allows the borrower to temporarily reduce or pause their payments on a loan,” she said.
“Forbearance may be granted for various reasons such as financial hardship, illness, or other unexpected circumstances that may prevent the borrower from making their regular loan payments. This might include putting a customer on an interest only mortgage for a period of time to reduce their monthly payments.
She explained some forbearance solutions may provide temporary relief but customers should make sure they were aware they may end up paying more on their loan over the longer term.
Nixon added: “Make sure to fully understand the terms and implications of any forbearance arrangement before agreeing to it and if unsure talk to a mortgage adviser as they can fully assess your needs and review your wider options.”
What to do if you are anxious about your mortgage costs
Kellie Steed also offered advice to anyone struggling with their repayments or concerned they may begin to face difficulties when their fixed rate ends.
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Speak to your lender as soon as possible
“Mortgage lenders can provide access to debt advice, as well as helpful budgeting tools and tailored forbearance planning,” Steed said.
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Consider your mortgage options
Those due to remortgage should speak to a broker to help them compare deals and find the most competitive mortgage.
“Sometimes even a 0.5% saving could be the difference between affordable repayments and breaking the budget,” said Steed.
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Don’t be afraid to ask for help
“The FCA defines mortgage borrowers as financially stretched if more than 30% of their gross household income is spent on mortgage payments and they are not in arrears,” Steed explained.
“With the average borrower spending over a fifth of their income on mortgage payments as of 2022, and continued cost of living increases, many more people are likely to be defined as ‘financially stretched’ by the end of 2023 – so you’re certainly not alone if you begin to struggle
“If you’re concerned about your mortgage payments, debt charities like Citizens Advice, Shelter, National Debtline and StepChange, will all be well-placed to offer advice and guidance”.
