Mortgage lenders told to do more to help struggling borrowers

Mortgage lenders have been told to do more to help customers who are struggling with repayments in the face of rising interest rates.

Regulator the Financial Conduct Authority (FCA) has written to more than 3,500 lenders calling on them to take the time to understand individual customers’ circumstances and offer tailored solutions.

It warned that lenders should also only charge fees that are fair and cover their own costs.

In addition, the FCA said they should encourage mortgage customers to switch to less costly options where these were available, as well as helping them to access free debt advice.

The call was directed at all types of lenders, including those who offer mortgages, credit cards and loans.

Sheldon Mills, executive director of consumers and competition at the FCA, said: “Many consumers are feeling the impact of the rising cost of living in their personal finances and we expect this to increase over the next few months.

“Early action is important for those struggling with debt. We need all firms to get the basics right and provide good quality support.”

The letter comes as the Bank of England increased interest rates for the fifth consecutive time, raising the official cost of borrowing to a 13-year high of 1.25%.

Interest rates rise to a 13-year high

The move means two million homeowners on variable rate mortgages will see their monthly repayments rise by a cumulative £114 a month since interest rates first began to increase in December.

Why is this happening?

The FCA said they had looked into how borrowers in financial difficulties were being treated by lenders.

They found that some lenders were not providing the right support.

The FCA was particularly concerned that the most vulnerable customers were not being given the right advice.

It pointed out that with household bills expected to continue to rise into the autumn, it was important that firms put measures in place to ensure they were offering the best help to struggling customers.

What should I do if I’m struggling?

The regulator urged borrowers who were struggling to talk to their lender as soon as they can.

The FCA said lenders must offer a range of short-term and long-term options to mortgage customers who were facing difficulties.

These include:

• extending the mortgage term to make monthly repayments more affordable
• changing the mortgage type, such as converting from a repayment mortgage to an interest-only one
• offering a payment holiday, to give customers breathing room to get their payments back on track

But it stressed that this list was not exhaustive, and lenders should consider other options under appropriate circumstances.

What’s the background?

Despite the pressures households face from the rising cost of living, it should not impact the amount mortgage customers can borrow, according to research carried out by mortgage trade body UK Finance.

It found that while rising prices had led to homeowners facing a 3% reduction in their disposable income, they would still qualify for the same sized mortgage now as they did last year.

The finding is good news for borrowers, as they face strict affordability tests which look at their day-to-day outgoings when they take out a mortgage.

It suggests that people looking to remortgage should still be able to borrow the same amounts as they could before the cost of living hike.