Mortgage Charter support for borrowers up to date with payments takes effect

Borrowers who are up to date with their mortgage payments can ask their lender to switch to interest only for up to six months, or to extend their mortgage term, without an affordability assessment, under measures that took effect on 30 June 2023¹. The Financial Ombudsman Service sets out the options on its guidance page for consumers in financial difficulty with mortgages¹.

The interest-only switch runs for up to six months and does not affect the borrower's credit file, though after that period payments are likely to increase to make up the missed amount¹. A term extension can be made without an affordability assessment provided it does not go past the borrower's retirement age, and the term can be switched back within six months, again without an affordability assessment¹. Neither step affects the credit file¹.

A separate measure applies from 10 July 2023: where a borrower is coming to the end of a fixed interest rate period and is worried about rising rates, the lender can offer a new rate up to six months before the old one expires, and the borrower can change their mind if rates go down¹. This is available where the lender has signed up to the Mortgage Charter¹.

The ombudsman service also states that lenders signed up to the Mortgage Charter agreed not to repossess until at least 12 months after a borrower first misses payments, with effect from 26 June 2023, and that repossession should always be a last resort¹. Borrowers who have already missed payments are treated differently: any help they receive will affect their credit file, though the ombudsman says lenders should still consider what support they can provide and should work to understand individual circumstances¹.

Why it matters for households

The measures are aimed at borrowers who are current on their mortgage but concerned about future payments, a group the ombudsman identifies alongside those already in difficulty as interest rates and the cost of living have risen¹. For a household that is up to date, the interest-only switch lowers the monthly payment for up to six months without a mark on the credit file, but the ombudsman notes payments are likely to rise afterwards to recover the shortfall¹. Extending the term lowers the monthly payment over a longer period, and the borrower can revert the term within six months without a fresh affordability check¹.

The distinction between being up to date and being in arrears matters for anyone with mortgage arrears on their credit file: the no-impact treatment applies to the interest-only switch and term extension for borrowers who have not missed payments, while help taken after missed payments does affect the credit file¹. The ombudsman's page also covers arrears fees and charges and complaints about payment holidays and credit files¹.

What happens next

The 30 June 2023 and 10 July 2023 measures are described as being in place following discussions between government, the Financial Conduct Authority and mortgage lenders¹. The ombudsman says it will consider the Mortgage Charter agreed in 2023, along with the FCA's guidance, when looking at complaints about financial difficulties that happened after the charter came into force¹. A lender should look into a complaint and reply within eight weeks; if the borrower is unhappy with the response, or does not hear back within that time, the complaint can be brought to the ombudsman¹. The ombudsman states its general approach is that a consumer should be put back in the position they would have been in if the problem had not happened¹.