The Financial Conduct Authority has published confirmed guidance about how mortgage lenders can help customers worried about mortgage payments due to the cost of living.
In December, the FCA published draft guidance that set out the flexibility firms have when providing forbearance to those who need it.
And the scope firms have to vary contract terms for other borrowers who want to reduce their monthly payments.
The FCA received 27 responses from a range of stakeholders including one consultancy, 14 consumer representatives and 12 firm representatives.
The now-published guidance has been put together to protect existing mortgage borrowers who are struggling to make payments due to increases in the cost of their mortgage.
Taking immediate effect, it lists out the tools that lenders can use to support customers in different circumstances.
It covers options such as extending the term of their mortgage, switching to interest-only for a temporary period, moving to a different interest rate or making reduced monthly payments for a temporary period.
In the updated guidance, the FCA outlined the steps firms can take that if a customer indicates that they are experiencing or expect to experience payment difficulties due to the rising cost of living.
In these cases firms should offer prospective forbearance to enable them to avoid, reduce, or manage any payment shortfall that would otherwise arise.
It explains that firms may offer payment concessions where they agree to accept less than the contractual monthly instalment.
But they may also offer contract variations such as term extensions and temporary switches to interest-only.
Alongside this, the FCA highlights that firms must act honestly, fairly and professionally in accordance with the best interests of their customers.
It also sets out guidance for customers that do not require forbearance but want to reduce their monthly payments.
In this scenario, the FCA said firms may offer a range of contract variations to support borrowers who would like to reduce their monthly payments.
These include interest rate switches, term extensions and variations to interest-only.
Alongside the guidance, the FCA found that in addition to those 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 (BoE) base rate.
Data found that those moving from a fixed rate could pay £340 a month more on average.
Commenting on the guidance, FCA executive director of consumers and competition Sheldon Mills 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.”
Quilter mortgage expert Charlotte Nixon added: “The FCA has revealed a suite of guidance for lenders with customers that are struggling to keep up with payments. This is largely around offering customers forbearance options.
“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.
“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.”
