Lenders have been urged to do more to help householders struggling to pay their mortgage amid the cost of living crisis.
New guidance published by the Financial Financial Conduct Authority (FCA) encourages lenders to think about what more they can do to help those who are in payment difficulty or at risk of missing payments because of rising interest rates and other hikes in the prices of fuel and food.
According to figures published by the FCA, there are around 200,000 home owners currently finding it hard to meet their monthly repayments, with fears that figure could grow to more than 350,000 by the middle of next year. Interest rates on mortgages are far higher than they were a year ago, with the cheapest fixed-rate deals now starting from 4%.
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More than a million fixed-rate deals are expected to expire this year. Amongst this group, those rolling off a fixed rate deal could end up paying an additional £340 a month on average.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “Our research shows most people are keeping up with mortgage repayments, but some may face difficulties. If you’re struggling to pay your mortgage, or are worried you might, you don’t need to manage alone. Your lender has a range of tools available to help. Get in touch as soon as you have concerns, don’t wait until you’re about to miss a payment before doing so. Just talking to them about your options won’t affect your credit rating."
Money Saving Expert Martin Lewis met with the FCA and Chancellor Jeremy Hunt in December 2022, amid fears of a potential ticking time bomb of both unaffordable high rates coupled with remortgage rejections due to the cost of living squeeze. Last November, cheap fixed-rate mortgage deals started from 5% and there were fears that 570,000 borrowers would be in difficulty.
Mr Lewis said that although the worst-case scenarios predicted at the end of last year had not materialised, he hoped that the new measures put lenders in a position to be able to offer quick-fire support in the event of future interest rate shocks.
"This FCA initiative is a thin sandwich – lots of bread but not much meat," he said. "It is primarily about clarifying guidance, which is needed, rather than any new measures. Thankfully, mortgage rates and interest rates haven't risen as high as they could have, so the need for urgent measures is less profound. Most who could afford to pay their mortgage then still can, even if it's tight. Yet it's also because getting any innovation through a body of lenders and regulators is tough. My hope is, as work has been done in the background, this carries on so there's a nimbleness and an ability to act in the event mortgage rates were to rise further."
Although the FCA guidance does not unveil any new support measures for families who are at risk of getting into arrears or who are already in debt, it does clarify the options that can be offered by mortgage lenders and states that it expects lenders to help struggling homeowners and to be transparent about the range of options that they can consider. The FCA is also encouraging firms to think about how they might handle large volumes of people looking for help to smooth out payment increases - for example, by offering some borrowers automated options quickly and online.
If your worried about paying your mortgage:
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Contact your lender. Do this as soon as possible and don't wait until you've already missed a payment to get in touch. The earlier you make the call, the more options could be available to you.
- Don't worry about your credit file yet. The simple act of contacting your lender to discuss options will have no impact on your credit file or score. According to the FCA, nearly 50% of struggling borrowers thought making contact could cause problems. It won't - although any mortgage support you agree to can impact your file.
The FCA says it has actively worked with lenders to make sure borrowers get the support they need, contacting customers a combined total of 16.5million times to offer support in the last year. Lenders have confirmed they expect to increase this to 20.5million contacts over the next year.
Your mortgage lender will need to assess your incomings and outgoings first before considering the best option for your circumstances. However, these changes could result in higher monthly payments in the future or paying back more overall - so it is important to do your research first. Although lenders will not necessarily be able to offer all of the options, solutions on offer might be:
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Switching temporarily to an interest-only mortgage: This means you are no longer paying off the actual loan, just the interest accruing on it. This can drastically reduce the amount you pay each month, depending on how far into the mortgage you are. If you're in the early years, it will make a small difference, but the closer you are towards the end of the mortgage term, the bigger the impact.
Taking a payment break: Here your payments will reduce to zero for a limited time, although interest will continue to accrue on your outstanding balance.
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Extending the term of your mortgage: Your lender may be able to spread the debt over a longer period – from 25 to 30 years, for example – reducing the repayment each month, although you will pay more interest.
These options can help in times of financial hardship, but always remember they'll add to the cost of the mortgage over the entire term, so if possible, switch back when you can. However, it stresses that these changes could result in higher monthly payments in the future or paying back more overall - so it is important to do your research first.
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