FCA's Guidance on Mortgage Borrowers Amid Cost-of-Living Crisis
In the midst of the continuing cost-of-living crisis, the financial burdens on households remain a central concern for the Financial Conduct Authority. Those with mortgages face higher monthly payments on top of increases in other bills and essential goods, and the FCA wants lenders to offer more support to these consumers. The FCA’s final guidance for mortgage lenders in assisting borrowers confirms the flexible forbearance options open to firms, and the scope that firms have to vary contract terms for borrowers who want to reduce their monthly payments.
Inflationary pressures have resulted in a sharp increase in the cost of living across the United Kingdom. These pressures have hit mortgage borrowers particularly hard, with many facing difficulties in making their monthly payments. Alongside publications and communications for firms, the FCA also makes clear to customers that help is available in firms, should those customers need it.
The FCA's final guidance emerged from a period of consultation and analysis, particularly of common forbearance practices actually used in firms, compared to the wider range that are available. The key takeaways from the guidance include:
Flexible Payment Options: Recognising the diverse circumstances of borrowers, the guidance encourages lenders to offer more flexible payment options. This may include payment deferrals or reductions, tailored to individual circumstances.
Vulnerable Customers Support: Special emphasis has been placed on identifying and supporting vulnerable customers, with the FCA encouraging lenders to take proactive measures to identify those at higher risk.
Communication and Transparency: Mortgage providers are urged to engage with customers openly, providing clear information on available support options, and maintaining transparent processes for those seeking assistance. Making clear that forbearance options are both available, and regularly used by other customers, can help customers feel more comfortable discussing their circumstances, which in turn helps make it easier to choose the most appropriate forbearance options.
Avoidance of Repossessions: The guidance advises lenders to exhaust all possible alternatives before considering repossession, treating it as a last resort.
Proactivity: Understanding which customers are at risk of payment difficulty, and ensuring there are open channels of communication, where the customer understands that they will be offered support.
The final guidance has largely been welcomed by the industry, with many recognising the FCA's balanced approach. However, some concerns were raised about the potential impact on lenders, especially smaller institutions that may find compliance more challenging.
For mortgage borrowers, the FCA's guidance offers a path to relief. It acknowledges the real struggles that many households are facing and aims to create a framework that encourages compassion, flexibility, and empathy from lenders. It ensures that those facing financial difficulties have avenues for support, without immediate fear of repossession.
A further consultation – on strengthening protections for consumers in financial difficulties closed in July, with a policy statement and feedback due in H2 2023, with any resulting rules due to come into effect in H1 of 2024 at which point the TSG will be revoked.
However, many of the protections afforded by the TSG will be incorporated into CONC and MCOB. Not all elements of the TSG will be included – those that are not relevant outside of the context of the pandemic won’t form part of the updated Handbook.
Regulatory oversight and industry commitment will be crucial in ensuring that these guidelines will, in becoming part of the standard set of conduct of business rules, translate into tangible support for borrowers. It is a challenge that calls for cooperation and a shared understanding of the hardships faced by many.
The FCA has provided a blueprint; the industry's task now is to build upon it, with the shared goal of aiding those who are struggling most during these turbulent times. The lessons learned and the approaches developed may well serve as a model for other jurisdictions facing similar challenges, making the FCA's guidance not just a national response, but a contribution to a global conversation on financial responsibility and empathy.
Appropriate choice of forbearance options is a common bugbear of the regulator. With many more avenues available than are commonly used, it falls to firms to train staff on the proper application of those options. Our online training courses introduce new staff to regulatory requirements, key legislation and process, and offer excellent refresher training for established staff, with up-to-date scenarios and soft skills training. Our Financial Difficulties course is priced at £20, is accessible at the user’s convenience and provides a certificate upon successful completion.