Mortgage lenders in the United Kingdom have agreed to take a more consistent and supportive approach to homeowners facing the cost-of-living crisis, following a Treasury meeting with chancellor Jeremy Hunt attended by consumer champion Martin Lewis.
On Wednesday, after the roundtable with executives from the country’s biggest banks, Chancellor Hunt said, “We expect every lender to live up to their responsibilities and support any mortgage borrowers who are finding it tough right now.”
Simultaneously, the UK Financial Conduct Authority, the financial watchdog, published draft guidance outlining the main methods of customer support, including forbearance programs like those implemented at the start of the Covid-19 pandemic.
Bankers also reaffirmed their commitment to offering borrowers the option to switch to fixed-rate mortgages with no affordability tests once their current deal expired if their payments were current.
Chancellor Hunt is concerned about wide variations in how different banks treat customers in financial difficulty, an issue that Lewis, a journalist, and campaigner, has repeatedly raised.
Hunt commands saying, “Lenders to do everything possible to assist vulnerable customers during the difficult months ahead.”
Lewis previously warned that a “perfect storm” was brewing for homeowners this spring, with surging energy prices, double-digit inflation, and interest rates expected to exceed 4% next year combining to make repayments unaffordable.
According to Bank of England data, one-third of borrowers on fixed-rate deals will need to refinance in the next two years, equating to hundreds of thousands of households per month at much higher rates. Earlier this year, the average rate on a five-year fixed deal had more than doubled to more than 6%.
Furthermore, the fiscal watchdog Office for Budget Responsibility reported last week that house prices are expected to fall by 9% over the next two years and could remain below their current level.
The FCA detailed the various methods by which banks can provide relief to customers in a separate statement. These include extending the term of a mortgage, temporarily switching to interest-only repayments, switching customers to a different interest rate, or allowing them to make lower monthly payments.
The FCA will also allow banks to use automation to “provide forbearance at scale” and identify similar groups of borrowers who may benefit from the same method of relief.
With the need for a regulator being recognized, they state, “Flexibility and scope to tailor their approach to meet the operational challenge of many customers needing help at the same time.”
Executive director of consumers and competition at the FCA, Sheldon Mills said, “If you’re struggling to pay your mortgage, or are worried you might, you don’t need to struggle alone. Your lender has a range of tools available to help, so you should contact them as soon as possible.”
Banks are to respond to proposals by 21st December 2022.