On 10 March 2023, the FCA published final guidance which sets out the ways mortgage lenders can help customers worried about or already struggling with their mortgage payments because of the rising cost of living. The FCA has also published new data and analysis on the mortgage market.
The new data shows that, in addition to the households already behind on payments, 356,000 mortgage borrowers could face payment difficulties by the end of June 2024. The data also finds that borrowers aged 18-34 are more likely to be financially stretched than the rest of the working age population.
The FCA’s final guidance follows a consultation that the regulator conducted last December and is set out in Finalised Guidance 23/2 ‘Guidance for firms supporting their existing mortgage borrowers impacted by the rising cost of living’ (FG23/2). The purpose of FG23/2 is to ensure that firms are clear about the effect of the FCA rules and the range of options they have to support their customers, including those who are facing higher interest rates alongside the rising cost of living. FG23/2 should be read alongside the Mortgage Conduct of Business Sourcebook, the Tailored Support Guidance, Guidance for firms on the fair treatment of vulnerable customers and the June 2022 Dear CEO letter which confirmed the FCA’s expectations of firms.
On forbearance FG23/2 provides guidance on:
- Providing forbearance at scale.
- Contract variations for the purposes of forbearance.
- Implications of forbearance arrangements.
Where customers do not require forbearance but instead want to reduce their monthly payments (contract variations) FG23/2 provides guidance on:
- Interest rate switches.
- Term extensions.
- Variation to interest-only.
- Implications of contract variations.
FG23/2 also briefly discusses exceptions to the requirement to provide advice.
Annex 1 to FG23/2 provides feedback to the responses the FCA received to its earlier consultation. The FCA reports that FG23/2 is largely unchanged to that consulted on with only three small amendments being made which are summarised at the end of the feedback.
When providing feedback on comments received on interest rate switches, the FCA makes the following point as regards an affordability assessment:
An affordability assessment may apply if the borrower is switching to a higher rate, for example if they want to switch from a low reversion rate to a higher fixed rate. This is consistent with our policy statement in PS 12/16 at paragraphs 3.9 to 3.11. In such cases we think it is appropriate that a firm considers the borrower’s ability to pay if the effect of the rate switch is material to affordability, for example if the resulting mortgage payment will be materially more expensive.