Possession protection commitment takes effect

Signatory lenders to the Mortgage Charter began applying new possession protections on 26 June 2023. Under the commitments agreed between the UK's largest mortgage lenders, the Financial Conduct Authority and the Chancellor, a borrower will not be forced to leave their home without consent unless in exceptional circumstances in less than a year from their first missed payment¹. The Charter also states that no further action will be taken if a Possession Order is granted from 26 June 2023¹.

The Charter was agreed at a meeting on Friday 23 June between the Chancellor, the UK's largest mortgage lenders, UK Finance and the FCA². The signatories represent approximately 90% of the mortgage market¹. The commitments do not apply to buy-to-let mortgages¹.

Further measures take effect on 10 July 2023. Customers approaching the end of a fixed rate deal will be able to lock in a deal up to six months ahead, manage the new deal and request a better like for like deal with their lender up until the new term starts, if one is available¹. Rates must be finalised two weeks before the new term starts, and six months is the maximum period lenders may offer for signing up to a new deal².

Customers who are up to date with payments can also ask to switch to interest-only payments for six months, or extend their mortgage term to reduce monthly payments, with the option to revert to the 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 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 higher¹. Affordability must be checked if a borrower wants to convert permanently to interest-only, or extend the term beyond their expected retirement date¹.

The Financial Ombudsman Service states that lenders signed up to the Charter have agreed not to repossess until at least 12 months after a first missed payment, with effect from 26 June 2023³. It adds that if payments have already been missed, any help received will affect the credit file, while discussing options does not³.

Why it matters for households

The protection applies to regulated residential mortgage borrowers at signatory lenders, not to buy-to-let mortgages¹. It runs from the date of a first missed payment, so a borrower who first misses a payment on or after 26 June 2023 falls within it. The separate commitment on Possession Orders means that where an order is granted from 26 June 2023, no further action follows¹.

The payment flexibility options are limited to borrowers who are up to date with payments; the Charter says customers currently in arrears should continue to work with their lender for the support they need¹. Taking interest-only payments or extending the term changes what is paid and when: the Charter states that payments afterwards may be higher and total costs over the life of the mortgage will be higher¹.

The FCA reported 0.86% of total residential mortgage balances in arrears in the first quarter of 2023, against 3.32% in 2009¹. The average homeowner remortgaging over the previous twelve months had around a 50% loan-to-value ratio, and lenders had around 10% of owner-occupier mortgages on their books with loan-to-value rates greater than 75%, compared with around 25% before the 2008 financial crisis¹.

What happens next

The FCA said it would work rapidly with signatories to adopt the necessary rules by Friday 30 June, and lenders, UK Finance and the FCA committed to give the Government an update on progress by that date². The FCA's Consumer Duty, coming into force in July, will also enable the FCA to support implementation of the Charter by its 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 circumstances². UK Finance is launching a communications campaign so customers know what to expect when they contact their lender¹.