FCA publishes guidance for firms supporting mortgage borrowers affected by living costs

The Financial Conduct Authority published finalised guidance for firms supporting existing mortgage borrowers impacted by rising living costs on 10 March 2023¹. The document is known as FG23/2². The House of Commons Library records the publication date as 10 March 2023¹, and the Finance & Leasing Association describes it as "Finalised Guidance (FG23/2) for firms supporting their existing mortgage borrowers impacted by the rising cost of living"².

The guidance followed a period of sharply higher mortgage costs. The Bank of England interest rate rose from 0.1% in December 2021 to 5.25% in August 2023¹. The Bank estimates that by July 2023 around half of mortgagor households had seen increases in their repayments since late 2021, with higher rates expected to affect most of the remainder by the end of 2026¹.

The FCA's guidance was one of several measures taken in response to the cost of living. In August 2023 the Government, the FCA and mortgage lenders agreed a Mortgage Charter, signed by lenders representing approximately 90% of the mortgage market¹. Its commitments include:

Separately, the Government reformed the Support for Mortgage Interest scheme to allow Universal Credit claimants to access support while working and to shorten the qualifying period, and provided £91.4 million funding in 2022/23 for the Money and Pensions Service to provide debt advice in England¹. UK Finance, the representative body for the banking and finance industry, launched a national "Reach Out" campaign to raise awareness of the support available to mortgage customers¹.

Arrears and possessions have risen from recent lows but remain below post-2008 levels. UK Finance reported around 90,700 mortgages in arrears of more than 2.5% at the end of June 2023, and around 1,100 properties taken into possession in the quarter ending June 2023¹. At the end of 2009, 216,400 mortgages were in arrears by more than 2.5% of their outstanding balance and 48,900 properties were repossessed over the course of that year¹. An industry-wide moratorium on repossessions ran between March 2020 and April 2021¹.

Why it matters for households

Around 7.1 million households in England own their home with a mortgage, 30% of all households, according to the English Housing Survey 2021 to 2022¹. For borrowers whose repayments have risen, the guidance sets out what the regulator expects from firms dealing with customers in financial difficulty, while the Mortgage Charter commitments apply to customers of the lenders that signed it, representing approximately 90% of the mortgage market¹. The charter's protections include the 12-month minimum period from a first missed payment before repossession without consent, and the ability to revert to an original deal within six months without affecting a credit score¹. Borrowers on certain means-tested benefits may be able to get help through the Support for Mortgage Interest scheme, which provides assistance in the form of an interest-bearing loan¹. Free, independent debt advice is available from charities and organisations, and advisory bodies tell anyone with concerns about managing their mortgage to contact their lender as soon as possible¹. Low-income households facing possession proceedings may be entitled to free legal aid¹.

What happens next

From 1 August 2023, the Legal Aid Agency introduced a new Housing Loss Prevention Advice Service¹. Individuals who require this service do not need to meet legal aid financial eligibility rules, but they must be at risk of losing their home¹. The Bank of England expects higher rates to affect most of the remaining mortgagor households by the end of 2026¹. The Shadow Chancellor, Rachel Reeves, has urged the Government to make the mortgage support measures mandatory for all lenders, and the Liberal Democrats have called for a temporary £3 billion mortgage protection fund providing grants of up to £300 a month to homeowners struggling to pay their mortgage; the Chancellor, Jeremy Hunt, has ruled out additional financial support for mortgage holders on the basis that this would add to inflationary pressures¹.