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What a difference four hours can make

By Paul Broadhead, Head of Mortgage and Housing Policy at the BSA. First published in Mortgage Finance Gazette 

Who knew so much can happen in four hours?  After a short break in Lanzarote, I boarded the flight home feeling refreshed. When I landed back in the UK and turned my phone on there were a series of dings as it alerted me to several texts, missed calls, voicemails and emails – the Bank of England had added another 0.5% to the Bank Rate, not a complete surprise, but there were also reports that the Chancellor had announced a meeting with the largest lenders, with an expectation of providing further support for borrowers struggling with rising interest rates and the cost of living. I was back to earth – and work – with a bump

The outcome of these discussions is a new Mortgage Charter that was published in the House of Commons on Monday 26 June. It is aimed at supporting those who are worried about rising mortgage payments, but who have not yet missed a payment. The Charter sets out universal standards signatory lenders will adopt to help and reassure borrowers who are concerned about rising interest rates.

The measures introduced are tweaks to what lenders are already doing for struggling homeowners. A temporary switch to interest only, or an extension of the mortgage term, are common options offered to those unable to meet their mortgage payments. But under the new Mortgage Charter, no new affordability tests or reporting to credit files will be required. These changes would not be permitted in this way under current FCA rules, but the Government wisely had the Financial Conduct Authority (FCA) in the room too, which agreed to revise the rules to enable lenders to support the charter.

As with all new, and quickly implemented, schemes, clarity beyond the headlines is needed. For example, how long can a mortgage term be extended, presumably not beyond retirement age but what is ‘normal retirement age’? Can a borrower move to interest only or extend the term – or both? Will a borrower switching to a different fixed rate deal before taking the one already booked pay a second application fee? Will compliance with the Mortgage Charter be compliant with the new Consumer Duty?

The details need to be worked through, and the lenders not in the room need to get up to speed with the requirements to ensure they are meeting all their regulatory obligations and doing their best for their customers. But with everyone working towards the same goal of keeping families and individuals in their homes during this difficult time of high inflation and rapidly rising mortgage rates, I’m sure we’ll find a balance that works for everyone, most importantly the consumer.

There will also be a consumer marketing campaign coordinated by UK Finance. Lenders are already in regular contact with their borrowers who may be vulnerable to the rising cost of mortgages or who may be concerned about meeting their existing mortgage costs. They have invested in providing highly trained and experienced teams, and in processes that consider more than just a family’s mortgage costs to identify those who may soon find meeting their mortgage payments a struggle. This targeted engagement by lenders has undoubtedly been a contributor to the low level of arrears that we currently have. The Charter as it stands, means that every homeowner will be getting the same message and support from their lender. They will receive this message and support consistently when their mortgage payments are due to change or when they contact their lender if they are worried about maintaining their payments. If a wider marketing campaign builds general consumer confidence and encourages those borrowers to contact their lender early, then there will be value in it long term.

So for me, there’s a lot to like about the way the new Charter has been introduced. Firstly, it builds on the already extensive support lenders are offering their borrowers. Secondly, the Mortgage Charter related changes to regulation can be implemented without a full review and re-write of MCOB and will be subject to a review in 12 months. And finally, it has been created simply and with many of the key stakeholders involved. It’s not therefore surprising that a good number of lenders have already signed up.

So I welcome the government’s action and the swift response of the regulators. I often use this column to bemoan the lack of joined-up thinking and the introduction of piecemeal policies. But on this occasion, I think the Chancellor’s intervention has been timely and solution-focused. Of course, time will tell if it delivers the desired outcome, my fingers are firmly crossed.