On Friday 23 June 2023 the Government announced that the UK Banks have agreed to wait at least 12 months before repossessing the homes of borrowers who fall behind on their mortgage payments.  Full details of the agreement are yet to be released, however the Chancellor, Jeremy Hunt, advised that the UK Banks had also committed to allow borrowers to temporarily increase their mortgage terms, without impacting borrowers’ credit ratings.

The discussions, which took place on Friday 23 June, were between the Chancellor, the FCA and the major UK Banks. The Chief Executive of UK Finance has commented: “Lenders recognise and understand this is an anxious time for mortgage customers and there is a lot of support available. Lenders have been working to contact and support millions of customers.

“Following today’s meeting with the Chancellor and FCA, we will be working with regulators to continue to deliver a range of support options for customers.

“Anyone who is worried about their finances should speak to their lender to find out what options are available to help. Contacting your lender to talk about the options available will not impact your credit score.”

Mortgage Charter

The Lenders (which are said to cover 75% of the market) agreed a new Mortgage Charter which is designed to provide support to residential mortgage customers. The Mortgage Charter states:

  • Anyone worried about their mortgage repayments can call their lender for information and support, without any impact on their credit score and we would encourage you to contact your bank who are there to help.
  • Customers won’t be forced to have their homes repossessed within 12 months from their first missed payment.
  • Customers approaching the end of a fixed rate deal will be offered the chance to lock in a deal up to six months ahead. They will also be able to apply for a better deal right up until their new term starts, if one is available.
  • A new agreement between lenders, the FCA and the government permitting customers to switch to an interest-only mortgage for six months, or extend their mortgage term to reduce their monthly payments and switch back to their original term within the first six months, if they choose to. Both options can be taken without a new affordability check or affecting their credit score.
  • Support for customers who are up-to-date with payments to switch to a new mortgage deal at the end of their existing fixed rate deal without another affordability check.
  • Providing well-timed information to help customers plan ahead should their current rate be due to end.
  • Offer tailored support for anyone struggling and deploy highly trained staff to help customers. This could mean extending their term to reduce their payments, offering a switch to interest only payments, but also a range of other options like a temporary payment deferral or part interest-part repayment. The right option will depend on the customer’s circumstances.

The Financial Conduct Authority

Given the involvement of the FCA it is anticipated that the FCA will issue updated guidance to UK Lenders regarding what support lenders need to provide to borrowers. Nikhil Rathi, the chief executive of the FCA, said that the meeting on the 23 June: “builds on the work we’ve done over the last year to ensure those who get into difficulty receive the tailored support they need. We’ll move quickly to make any changes needed to support today’s commitments.”

The latest FCA guidance to lenders regarding borrowers struggling due to the rising cost of living was published in March 2023. It is potentially this guidance that Mr Rathi was referring to when he refers to the work they have been undertaking over the last year.

Unlike previous guidance issued by the FCA, the March 2023 guidance states that it is for “mortgage lenders, mortgage administrators, consumer groups and trade bodies” but  it is not explicit as to which lenders it applies to. We consider that it is fair to assume that it applies to all firms to which the Mortgage Conduct of Business Sourcebook applies (being all firms who carry on a home finance activity or firms dealing with home purchase plans, home reversion plan or regulated sale and rent back agreements) but we await the updated guidance from the FCA for confirmation.

It is noted that the 12 month moratorium on possessions relates to “customers” having “their homes repossessed” it appears therefore to only apply to owner occupied properties. Further, Chancellor Jeremy Hunt has stated that the 12 month period only relates to repossessions without consent. The ability for lenders to seek possession by consent is not impacted by this announcement. Seeking possession by consent is something which we seek to do as a matter of course at CG&Co as we find that it is beneficial to all parties and avoids costly and time consuming possession proceedings.