Britain’s mortgage lenders have agreed to take a more consistent and supportive approach to homeowners struggling with the cost of living crisis, action prompted by a Treasury meeting with chancellor Jeremy Hunt and attended by consumer champion Martin Lewis.
“We expect every lender to live up to their responsibilities and support any mortgage borrowers who are finding it tough right now,” Hunt said after the roundtable with executives from the country’s biggest banks on Wednesday.
At the same time, the UK Financial Conduct Authority, the financial watchdog, published draft guidance outlining the main methods of support for customers, including forbearance programmes similar to those introduced at the start of the Covid-19 pandemic.
Bankers also made commitments on offering borrowers the chance to move to fixed-rate mortgages, without affordability tests, when their current deal ended if their payments were up to date.
The chancellor is concerned that there are wide variations in how different banks treat customers facing financial difficulties, an issue that has been persistently highlighted by Lewis, a journalist and campaigner.
Hunt warned the lenders to do everything they could to help vulnerable customers through the difficult months ahead.
Lewis has previously warned that a “perfect storm” was heading towards homeowners in the spring, as surging energy prices, double-digit inflation and interest rates forecast to exceed 4 per cent next year combine to make repayments unaffordable.
Bank of England data indicate that a third of borrowers on fixed-rate deals will have to refinance in the next two years — equating to hundreds of thousands of households per month — at far higher prices. Earlier this year, the average rate on a five-year fixed deal had more than doubled to greater than 6 per cent.
Additionally, the Office for Budget Responsibility fiscal watchdog said last week that house prices are forecast to fall by 9 per cent over the next two years and could remain below their current level for five years.
In a separate statement, the FCA set out the various methods by which banks can offer relief to customers. These include extending the term of a mortgage, switching to interest-only repayments for a temporary period, moving customers to a different interest rate or allowing them to make reduced monthly payments.
The FCA will also allow banks to use automation to “provide forbearance at scale” and proactively identify similar groups of borrowers that might benefit from the same method of relief.
The regulator said that it recognised the need for “flexibility and scope to tailor their approach to meet the operational challenge of many customers needing help at the same time”.
“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,” said Sheldon Mills, executive director of consumers and competition at the FCA.
Banks must respond to the proposals by 21 December.