Property Receivership: The New Mortgage Charter

Property Receivership: The New Mortgage Charter

On Friday 23 June, 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 payments.

In response, the Mortgage Charter has now been published in its entirety on the Government’s Website. A full copy can be found here: https://www.gov.uk/government/publications/mortgage-charter/mortgage-charter#the-charter

The full list of lenders who have subscribed to the Mortgage Charter have also been published and these now cover 85% of the markets. The charter applies to regulated residential mortgage borrowers (and not Buy to Let mortgages) and states:

What has been outline in the Mortgage Charter?

All lenders have agreed:

• Anyone worried about their mortgage repayments can contact their lender for help and guidance, without any impact on their credit file and we would encourage you to contact your bank who are there to help.
• 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.
• Lenders will provide well-timed information to help customers plan ahead should their current rate be due to end.
• Lenders will 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.

Signatories to this Charter have agreed:

• From 26th June, a borrower will not be forced to leave their home without their consent unless in exceptional circumstances, in less than a year from their first missed payment.
• With effect from 10th July customers approaching the end of a fixed rate deal will have the chance to lock in a deal up to six months ahead. They will also be able to manage their new deal and request a better like for like deal with their lender right up until their new term starts, if one is available.
• A new deal between lenders, the FCA and the government permitting customers who are up to date with their payments to:
  • Switch to interest-only payments for six months or
  • extend their mortgage term to reduce their monthly payments and give customers the option to revert to their original term within 6 months by contacting their lender

These options can be taken by customers who are up to date with their payments without a new affordability check or affecting their credit score. Customers who are currently in arrears should continue to work with their lender for the support that they need.

The government confirmed it has delivered:

• action to make Support for Mortgage Interest easier to access; if you are on Universal Credit you can now receive help with your mortgage interest payments after three months
• record levels of funding for the Money and Pensions Service to provide debt advice in England

The FCA has introduced:

• new guidance clarifying how lenders can support borrowers impacted by the rising cost of living
• information for borrowers on the options and support available if they are struggling with payment

UK Finance, the trade association for mortgage lenders, will be launching a communications campaign to ensure customers know what to expect if they need support from their lender.

FCA

In response to the publication of the Mortgage Charter, the FCA is updating its Mortgages and Home Finance: Conduct of Business Sourcebook (MCOB) so that it enables firms to allow mortgage borrowers to reduce their capital repayments (including to zero, so as to become interest only) for up to six months and to reverse a term extension within 6 months of the extension, both without affordability assessment.

The statement published by the FCA applies to all borrowers, with the express exception of second charge and bridging loan customers[6]. The statement also expressly states that it is designed to enable those firms who have signed up to the Government’s Mortgage Charter to deliver on their commitments, but that the changes are not limited to those firms alone.

In relation to the specific commitment to the 12 month moratorium on new repossessions, the FCA has stated:

Our rule changes have not superseded or replaced any of the existing forbearance options within MCOB 13. Lenders will still be expected to consider appropriate forbearance arrangements for borrowers in financial difficulty. This is particularly the case given the signatories’ commitment not to repossess within 12 months of a missed payment except in exceptional circumstances. This commitment is in line with the approach to repossessions in the Pre-action Protocol and MCOB 13 – namely that lenders must not repossess the property unless all other reasonable attempts to resolve the position have failed.

It therefore appears from the FCA’s perspective that nothing has materially changed in respect of their guidance on repossessions in any event. The FCA clearly expect that lenders to whom the MCOB apply, should be concluding that, in the current climate a 12 month grace period is an appropriate response in order to be compliant.

The Bridging Finance Market should note that, at present, the FCA have expressly stated that:

these changes only apply to first charge residential mortgages and (for term reductions) home purchase plans. They do not apply to bridging loans or second charge mortgages. We have limited the effect of these changes because the immediate concern, and scope of the Charter, has been the mainstream mortgage market. We will consider the case for extending the rule changes beyond first charge residential mortgages and home purchase plans (for example, second charge and bridging loans) as part of our review.

The FCA have advised that they will review the changes in one year.

Is should be noted that the FCA are currently consulting on making permanent changes to the FCA sourcebooks following their planned withdrawal of the Tailored Support Guidance which was introduced during the Pandemic to give guidance to firms looking to support customers in financial difficulties. The consultation period is until 13 July 2023 and those wishing to contribute can do so by completing an online response form, found here: https://www.fca.org.uk/cp23-13-response-form.

Should you wish to discuss these updates, or require more details as to how you may be impacted by the changes, please do not hesitate to contact us on 0161 358 0210 or info@cg-recovery.com

Learn more about Property Receivership here.