The UK Introduces Repayment Concessions For Residential Mortgages – Financial Services

In June of this year, the UK’s Financial Conduct Authority
(“FCA”) introduced rules to allow mortgage lenders to
more easily vary contracts in order to allow borrowers to make
reduced capital payments or switch to an interest-only loan for a
period of up to six months. With 1.7 million fixed rate deals
expiring over the next 12 months, and to enable lenders to meet
their commitments under the Government’s Mortgage Charter (to help customers in
financial distress due to rising interest rates, including with
tailored support such as temporary payment deferrals, part
interest-part repayment options and a switch to interest-only
payments), changes to the FCA’s Mortgages and Home Finance:
Conduct of Business (“MCOB”) sourcebook have been made as
exemptions from responsible lending requirements. As the exemptions
facilitate switching to interest-only mortgages as well as
extensions of the term of the loan, these measures have an obvious
potential effect on the risk profile of securitised asset pools, as
well as prompt reviews of impacts on any eligibility criteria and
concentration limits of certain types of mortgage within
securitised portfolios.

The New Rules

Effective immediately:

1. Authorised mortgage lenders may now allow borrowers to extend
   their mortgage term up to retirement without undertaking the
   affordability assessment usually required by MCOB rules provided
   that the borrower decides to reverse the extension within six
   months of it having taken effect; and




2. Lenders may also offer the option of making interest-only
   payments for up to six months, provided that full capital
   repayments are resumed which include catching up with the reduced
   payments over the remaining term.

These measures do not supersede or replace existing forbearance
options for borrowers in financial difficulty in MCOB, and lenders
will still be expected to consider these. In addition, the new
Consumer Duty will apply, including requirements to empower
borrowers to make informed decisions by explaining benefits, risks
and costs and enabling understanding.

Implementation and Next Steps

Due to the urgent requirement for consumer protection measures,
these new rules came into force on publication on 24 July. The FCA
has also recently concluded a consultation on making their COVID Tailored
Support Guidance (“TSG”) permanent. The TSG was
introduced during the pandemic and sets out expectations from
lenders when dealing with customers who need “tailored
support,” including forbearance, when dealing with mortgage,
overdraft and consumer credit debt. Again, the embedding of this
support for consumers may require the review of affected
securitised asset pools.

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guide to the subject matter. Specialist advice should be sought
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