New rule on expired term customers took effect

A new rule in the Financial Conduct Authority's mortgage conduct rules took effect on 22 July 2025. MCOB 13.3.8A requires firms to deal fairly with customers whose mortgage terms have expired with a balance outstanding, and not to take repossession action unless all other reasonable attempts to resolve the position have failed¹.

The rule sits in MCOB 13, which covers payment difficulties and repossessions for regulated mortgage contracts and home purchase plans². The FCA's guidance states that when dealing with customers whose mortgage terms have expired with a balance outstanding, firms must deal with customers fairly and not take repossession action unless all other reasonable attempts to resolve the position have failed². The chapter's purpose section, updated on the same date, says it also requires firms to treat expired term customers fairly².

The wider chapter already sets out how firms must handle customers in payment difficulties. A firm must not attempt to process more than two direct debit requests in any one calendar month where a customer has a payment shortfall, and must not pass on costs incurred as a consequence of presenting direct debit requests during a period of consideration¹. Where a direct debit has been refused for insufficient funds on at least one occasion in each of two consecutive months, the firm must consider whether the payment method remains suitable, make reasonable efforts to contact the customer, and not pass on related costs¹.

Firms must also consider, given the customer's circumstances, whether it is appropriate to extend the mortgage term, change its type, waive or defer capital or interest, reduce the interest rate or apply simple interest instead of compound, treat a payment shortfall as part of the original amount, or use Government forbearance initiatives, in each case with the customer's agreement¹. A firm must not automatically capitalise a payment shortfall where the impact would be material, defined as increasing the interest payable over the term by £50 or more, or the contractual monthly repayment by £1 or more¹. Customers must be given adequate information on the implications, including the potential impact on their overall balance and how it will be reported to their credit file¹.

Why it matters for households

The rule applies to customers whose mortgage term has ended but who still owe a balance, a group the FCA's guidance now names explicitly². For those households, the practical effect is that a lender cannot move to repossess unless it has first tried other reasonable routes to resolve the position¹. The chapter applies to mortgage lenders, mortgage administrators, home purchase providers and home purchase administrators, and continues to apply after a regulated mortgage contract or home purchase plan has ended following the sale of a repossessed property².

Separately, the chapter requires firms to inform customers that free and impartial money guidance and debt advice is available, including from not-for-profit bodies, and to signpost or refer them to suitable sources¹. Firms must also establish and implement policies for the fair treatment of customers they understand, or reasonably suspect, to be vulnerable¹. The FCA has not reported how many customers hold expired term mortgages with an outstanding balance.

What happens next

The rule took effect on 22 July 2025¹. The FCA Handbook page for MCOB 13.3 records a further guidance provision, MCOB 13.3.8B, dated 26/06/2026³. No other dated next steps have been reported.