FCA publishes policy statement and revised rules to bring the Mortgage Charter into force

The Financial Conduct Authority published a policy statement and revised rules on 30 June 2023 to bring the Mortgage Charter into force, effective from that date¹. The charter itself was published by the government on 26 June 2023, with lenders representing 85% of the UK's mortgage market committing to the measures announced¹. The Financial Ombudsman Service said it welcomed the additional options and flexibility the charter offers¹.

The charter sets out standards that signatories will adopt when helping their regulated residential mortgage borrowers worried about higher rates⁴. The commitments do not apply to buy-to-let mortgages⁴. The measures include:

The charter introduces the ability for borrowers to reduce payments through a switch to interest-only payments for six months, and to extend the mortgage term to reduce monthly payments, with the option to revert to the original term within six months¹. These options can be taken by customers who are up to date with their payments without a new affordability check or affecting their credit score⁴. The charter notes that monthly payments after the support may be higher than they otherwise would have been and overall costs over the life of the mortgage will be higher⁴. Affordability will need to be checked if borrowers wish to permanently convert to an interest-only mortgage, or where the mortgage term is proposed to be extended beyond the borrower's expected retirement date⁴.

The government also confirmed it has delivered action to make Support for Mortgage Interest easier to access, so that people on Universal Credit can receive help with mortgage interest payments after three months⁴. The FCA reported 0.86% of total residential mortgage balances in arrears in the first quarter of 2023, which it said is significantly lower than the 3.32% rate in 2009⁴.

Why it matters for households

The charter applies to regulated residential mortgage borrowers of participating lenders, and not to buy-to-let mortgages⁴. Lenders who signed up represent approximately 90% of the mortgage market, according to the charter document, while the Financial Ombudsman Service put the figure at 85% of the UK's mortgage market¹. The two figures are not reconciled in the published material.

For borrowers who are up to date with payments, the interest-only switch and term extension options are available without a new affordability check or an effect on their credit score⁴. The charter states that anyone worried about mortgage repayments can contact their lender for help and guidance without any impact on their credit file⁴. Borrowers who are currently in arrears are directed to continue working with their lender for the support they need⁴.

The Financial Ombudsman Service said it would take the new commitments into account when considering mortgage complaints, and that it would still expect fair and reasonable treatment for all borrowers facing financial difficulty, whether the new measures are available to them or not¹.

What happens next

The charter document, published in June 2023, said the FCA would work rapidly with signatories to adopt the necessary rules by Friday 30 June⁴. It also said lenders, UK Finance and the FCA had committed to implementing the full charter at pace and would provide government with an update on progress by Friday 30 June⁴. The FCA's Consumer Duty, coming into force in July, was cited as enabling the FCA to support implementation of the charter by its signatories⁴. The rules allowing customers approaching the end of a fixed rate deal to lock in a deal up to six months ahead took effect from 10 July¹.