The Government has met with the UK’s principal mortgage lenders and FCA to agree a new mortgage charter providing support for residential mortgage holders.
Recent market indicators show that mortgage arrears and defaults remain below pre-pandemic levels, which were themselves extremely low. FCA reported 0.86% of total residential mortgage balances in arrears in Q1 2023, compared to 3.32% in 2009. The proportion of disposable income spent on mortgage payments is currently 5.4%, compared to approximately 10% in the 1990s and prior to the financial crisis. The average homeowner re-mortgaging over the last 12 months had around a 50% loan-to-value ratio, indicating that homeowners have considerable equity in their homes and can more easily manage repayments. Lenders have less than 10% owner-occupier mortgages on their books with loan-to-value rates greater than 75%, compared to approximately 25% prior to the financial crisis. Overall, these statistics indicate that the market is in a significantly stronger position than previously.
The charter contains the following measures:
- Anyone worried about mortgage repayments can call their lender for information and support, without any impact on their credit score;
- 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 confirm a deal up to 6 months ahead. They will also be able to apply for a better deal right up until their new term starts, if one is available;
- There will be a new agreement between lenders, FCA and the Government permitting customers to switch to an interest-only mortgage for 6 months, or extend their mortgage term to reduce their monthly payments and switch back to their original term within the first 6 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; and
- 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.