On 30 June 2023, the FCA published Policy Statement 23/8 ‘Mortgage Charter: enabling provisions’ (PS23/8).

The FCA is amending its Mortgages and Home Finance: Conduct of Business sourcebook (MCOB) to support the implementation of the Government’s Mortgage Charter. The changes enable mortgage lenders to meet their commitments under the Charter, which builds on the previous work the FCA and lenders have done to support borrowers. Our earlier blog on the commitments under the Government’s Mortgage Charter can be found here.

Lenders will be able to offer borrowers:

  • A switch to interest-only payments for 6 months.
  • An extension to their mortgage term to reduce their monthly payment, with the option to switch back within six months.

In PS23/8:

  • The FCA is amending its responsible lending rules (MCOB 11.6). These changes mean lenders do not need to undertake an affordability assessment when varying a contract to allow a customer to make reduced capital payments (including to zero, and paying interest only) for up to 6 months, or when reversing a term extension within 6 months of it taking effect.
  • These are limited exemptions from the FCA’s affordability requirements. Lenders will still need to assess affordability if a borrower wants to permanently convert to an interest-only mortgage or to extend the term of their mortgage beyond their expected retirement date.
  • Where these options are used, both the overall cost of the mortgage and the borrower’s monthly payments are likely to be higher than they would otherwise have been. Where borrowers are confident they can continue to meet their original contractual mortgage payment, they should continue to do so.

The FCA will update Finalised Guidance 23/2 to reflect these new options as soon as possible.

The rule changes take effect from 30 June 2023. Firms may begin using these exemptions from that date.

The FCA will review the impact of the rule changes within 12 months.