Participating lenders to offer rate lock up to six months ahead of expiry

Participating lenders began offering borrowers the chance to lock in a new interest rate up to six months before their old one expires from 10 July 2023, under the Mortgage Charter agreed between the UK's largest lenders, the Financial Conduct Authority and the Chancellor¹. The government published the Charter on 26 June 2023, with lenders representing 85% of the UK's mortgage market committing to its measures¹. The FCA published a policy statement and revised rules bringing the Charter into force on 30 June 2023¹.

The rate lock measure sits alongside other commitments. Signatories agreed that from 26 June 2023 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 payment¹. Most other commitments took effect from 30 June 2023, when the FCA's rule changes came into force¹.

The Charter sets out these measures for borrowers:

The government document states that rates must be finalised two weeks before the new term starts, and that six months is the maximum time lenders may offer for customers to sign up to a new deal under the Charter². Borrowers are directed to contact their lender to understand how far in advance it will offer the option to lock in a deal². The commitments do not apply to buy-to-let mortgages².

The Financial Ombudsman Service said it would take the new commitments into account when considering mortgage complaints¹.

Why it matters for households

The rate lock applies to customers approaching the end of a fixed rate deal with a participating lender, and takes effect from 10 July 2023². It gives those borrowers the option to secure a rate earlier than was previously possible, rather than waiting until nearer the end of their existing deal². The government document notes that borrowers will also be able to manage their new deal and request a better like for like deal with their lender right up until their new term starts, if one is available².

The other Charter measures affect borrowers who are up to date with payments. The government document states these options can be taken without a new affordability check or affecting their credit score². It also 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 higher². 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 date².

The Charter's signatories represent approximately 90% of the mortgage market, according to the government document, while the Financial Ombudsman Service and the FSCS cite 85%¹. The government document states that other lenders will continue to provide tailored support to vulnerable borrowers, including options that may be similar to the flexibilities permitted under the Charter².

What happens next

The government document states that lenders, UK Finance and the FCA committed to implementing the full Charter at pace, and that the FCA would work rapidly with signatories to adopt the necessary rules by Friday 30 June 2023². It adds that the FCA's Consumer Duty, coming into force in July 2023, would enable the FCA to support implementation of the Charter by its signatories². 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. No further steps beyond these have been reported.