Mortgage Charter agreed by lenders, FCA and government

The UK's largest mortgage lenders and the Financial Conduct Authority agreed with the Chancellor a set of standards for helping regulated residential mortgage borrowers worried about higher rates, published as the Mortgage Charter in June 2023¹. The Chancellor met lenders, UK Finance and the FCA on Friday 23 June, where lenders agreed the new commitments³. The signatories represent approximately 90% of the mortgage market¹, and the FCA later put the number of signatories at 49⁴.

The commitments do not apply to buy-to-let mortgages¹. Under the Charter, from 26 June a borrower will not be forced to leave their home without their consent unless in exceptional circumstances, in less than a year from their first missed payment, and no further action will be taken if a Possession Order is granted from 26 June 2023¹. With effect from 10 July, customers approaching the end of a fixed rate deal will have the chance to lock in a deal up to six months ahead, and can request a better like for like deal with their lender right up until their new term starts, if one is available; rates must be finalised two weeks before the new term starts¹.

Customers who are up to date with payments can switch to interest-only payments for six months, or extend their mortgage term to reduce monthly payments, with the option to revert to their original term within six months by contacting their lender¹. These options can be taken without a new affordability check or affecting their credit score¹. The Charter states 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 higher, and that affordability will need to be checked if borrowers wish to permanently convert to an interest-only mortgage, or where the term is proposed to be extended beyond the borrower's expected retirement date¹. Anyone worried about their mortgage repayments can contact their lender for help and guidance without any impact on their credit file¹.

The Charter also set out related measures. The government confirmed that people on Universal Credit can now receive help with their mortgage interest payments after three months¹. 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 2009¹. The average homeowner re-mortgaging over the last twelve months had around a 50% loan-to-value ratio, and lenders have around 10% of owner-occupier mortgages on their books with loan-to-value rates greater than 75%, compared to around 25% before the 2008 financial crisis¹.

Why it matters for households

The commitments apply to regulated residential mortgages, not buy-to-let¹. For borrowers coming to the end of a fixed rate deal, the ability to lock in a deal up to six months ahead applies from 10 July 2023¹. For those up to date with payments, the interest-only and term extension options are available without a new affordability check or a credit score impact, but the Charter states that payments afterwards may be higher and overall costs over the life of the mortgage will be higher¹. Borrowers already in arrears are directed to work with their lender for support¹. The repossession commitment took effect from 26 June 2023¹.

What happens next

The lenders, UK Finance and the FCA committed to implementing the full Charter at pace, with an update to government on progress by Friday 30 June, and the FCA said it would work rapidly with signatories to adopt the necessary rules by the same date¹. The FCA's Consumer Duty, coming into force in July, would also enable the FCA to support implementation by signatories¹. The Prudential Regulation Authority confirmed the measures are not expected to lead to an immediate or automatic increase in capital requirements for banks, depending on the circumstances¹. Separately, the FCA's Policy Statement PS24/2, published in April 2024, set rules strengthening protections for borrowers in financial difficulty, coming into force on 4 November 2024, when the Tailored Support Guidance would be withdrawn⁵.