Help for struggling mortgage borrowers confirmed – but Martin Lewis says it's 'a thin sandwich'
New guidance designed to help homeowners struggling with their mortgage payments has been published by the financial regulator, though it has been likened to a "thin sandwich" by MoneySavingExpert.com founder Martin Lewis. However, Martin has said he is hopeful the measures put lenders in a position to be able to offer quick-fire support in the event of future interest rate shocks.
The guidance – published today by the Financial Conduct Authority (FCA) – reiterates the kind of support that can be offered to homeowners who are finding it difficult to repay their mortgage, such as those impacted by the cost-of-living crisis. It also encourages lenders to think about what more they can do to help those who are in payment difficulty or at risk of missing payments.
Interest rates on mortgages are far higher than they were a year ago, with the cheapest fixed-rate deals now starting from 4%. More than a million fixed-rate deals are expected to expire this year, and the FCA estimates that more than 350,000 homeowners could be struggling to pay their mortgage by mid-2024 (in addition to 200,000 already in this position).
Today's guidance follows a meeting which Martin Lewis held with both the FCA and Chancellor Jeremy Hunt in December 2022, where Martin pushed lenders to offer more support for struggling homeowners. Last November, cheap fixed-rate mortgage deals started from 5%.
Martin Lewis, founder of MoneySavingExpert.com, said: "This FCA initiative is a thin sandwich – lots of bread but not much meat. It is primarily about clarifying guidance, which is needed, rather than any new measures.
"It was born out of last December's mortgage summit, called by the Chancellor Jeremy Hunt, on the back of warnings of a potential ticking time bomb of both unaffordable high rates coupled with remortgage rejections due to the cost of living squeeze.
"As the only person invited not from a bank or regulator, I raised a number of tweaks, changes and improved communication as relief measures to get customers over a tricky time. Few of those have materialised. Some of that is for good reason. The worst case scenarios back then were dreadful, and the key to the meeting was being prepared for the worst.
"Thankfully, mortgage rates and interest rates haven't risen as high as they could have, so the need for urgent measures is less profound. Most who could afford to pay their mortgage then still can, even if it's tight. Yet it's also because getting any innovation through a body of lenders and regulators is tough.
"My hope is, as work has been done in the background, this carries on so there's a nimbleness and an ability to act in the event mortgage rates were to rise further."
The support you can expect if you're struggling with your mortgage
While there were no new measures of support announced in the FCA guidance, it does reiterate the options that can be offered by mortgage lenders. It also sets out that the FCA expects lenders to help struggling homeowners (including those who have and haven't missed repayments) and to be transparent about the range of options that they can consider.
In the first instance:
- If you're worried about keeping up with your mortgage repayments, you should contact your lender as soon as possible. Don't wait until you've missed a payment to get in touch. The earlier you reach out, the broader the range of options that could be available to you.
- Simply reaching out to your lender to talk about your options will NOT impact your credit file or score. According to the FCA, nearly 50% of struggling borrowers mistakenly believe that it will. However, where you ultimately agree to mortgage support, this can impact your file.
After an assessment of your incomings and outgoings, a lender might offer:
- A temporary switch to an interest-only mortgage. Here you no longer pay off the actual loan itself, just the interest that's accruing. Where the switch to interest-only is permanent rather than temporary, there will likely be more hurdles to jump through – such as proving you'll be able to repay the mortgage at the end of the term.
- A temporary break from repayments. This might be in part or in full. Interest will most likely continue to accrue on your mortgage balance while you are not making repayments.
- An extension to the term of your mortgage. For example, from 25 to 30 years. This is designed to lower your monthly repayments, though you will end up paying more over the life of the mortgage. Also bear in mind that if you intend to extend the term on a temporary basis that you will likely need to undergo an affordability assessment to revert it back to the original term.
Do note that lenders will not necessarily be able to offer all of the three options above. Ultimately, the lender will decide which option (if any) to offer you based on an overview of your circumstances. It might also have other ways of helping.
The FCA is also encouraging firms to think about how they might handle large volumes of people looking for help to smooth out payment increases - for example, by offering some borrowers automated options quickly and online.
For more help if you're struggling with your mortgage payments, see our full Mortgage arrears guide.
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