Struggling mortgage borrowers are urged to talk to lenders because they have ‘tools available to help’

The city’s regulator has urged mortgage borrowers struggling with repayments to contact their lender for help — though it admitted the number likely to run into trouble has fallen.

The new guidelines from the Financial Conduct Authority outline ways mortgage lenders can help customers who are concerned or already struggling with their mortgage payments due to the rising cost of living.

It includes options such as extending the term of their mortgage or temporarily reducing their monthly payments, also known as forbearance.

The FCA has issued guidance as 1.4 million mortgage holders' fixed-rate loans mature this year

The FCA has issued guidance as 1.4 million mortgage holders’ fixed-rate loans mature this year

The regulator has said lenders can change the terms of a mortgage contract without having the borrower check affordability when it comes to forbearance.

It also warned that the lender or broker should ensure clients are fully aware of the consequences of forbearance. Measures such as deferrals can not only increase a borrower’s debt, but also have a negative effect on the borrower’s credit record.

Iain Swatton, head of mortgages at interest rate tracking company Dashly, says: “We saw similar measures during Covid where support was introduced to ease the burden on those most in need by taking a payment break on their mortgage .

‘This was done without affecting your credit arrears and meant that if you were in financial difficulties, due to situations that you did not cause, you were not penalized.

“The last thing lenders want is for homeowners to fall into arrears or be unable to pay their mortgages. Most lenders will work with the homeowner to find a solution, whether that be lowering payments and extending the term or moving to an interest-only option.”

If you’re struggling to pay your mortgage, or if you’re worried, you don’t have to make it alone. Your lender has a range of resources available to help you

Other options for borrowers who believe they are struggling or are currently struggling to make their payments include switching to a term interest-only loan or switching to a different rate.

Extending the term of a mortgage is another option that allows borrowers to reduce their monthly payments.

> What to do if you cannot pay your mortgage: We explain what your options are if you are struggling to pay the rising interest rates

Sheldon Mills, executive director of consumer and competition at the FCA, added: ‘Our research shows that most people are keeping up with their mortgage payments, but some may experience difficulties.

“If you’re struggling to pay your mortgage, or worried that you might, you don’t have to make it alone. Your lender has a range of resources available to help you.

‘Get in touch as soon as you have any concerns, don’t wait until you’re about to miss a payment before doing so. Just talking to them about your options won’t affect your credit rating.’

What is the magnitude of the risk for mortgage holders?

Homeowners struggling with payments should talk to their lender as soon as possible

Homeowners struggling with payments should talk to their lender as soon as possible

Homeowners struggling with payments should talk to their lender as soon as possible

Overall, the FCA estimates that 356,000 mortgage borrowers could face payment difficulties by the end of June 2024, in addition to those already in arrears.

The situation has improved, however, as the figure is down 37 percent from the 530,000 households the regulator previously estimated will be in trouble.

The cut is the result of an improvement in market expectations around the Bank of England’s key interest rate. In the aftermath of last fall’s disastrous mini-budget, many expected base rates to peak at 5.25 percent or higher.

Falling inflation, however, has bolstered expectations that the Bank of England will soon end its cycle of rate hikes, and some economists are now predicting a cut by the end of 2023.

While this is good news, the FCA still estimates that households struggling on a fixed rate mortgage could pay an average of £340 extra per month.

In addition, the research shows that borrowers between the ages of 18 and 34 are more likely to be financially stressed than the rest of the workforce. Regionally, those living in London and the South East are most likely to be stretched, although being overstretched doesn’t mean payments will necessarily be missed.

Official figures from the ONS show that 57 percent of the more than 1.4 million fixed-rate mortgages due this year are at interest rates below 2 percent. The cheapest rates available today are nearly double that at over 3.95 percent.

Nicholas Mendes of mortgage broker John Charcol says: ‘For many homeowners who have owned a home in the last 10 years, this will be the first time they have faced serial threats to their income and circumstances.

“Even with prudent budgeting, some households will feel there is nothing they can cut back on. While there are steps you can take to lower your monthly payments, not all of them may be possible and it is advisable to talk to the lender who can assess your situation.’

Why have rates increased so quickly?

Mortgage rates first started rising in December 2021, when the Bank of England began raising its base rate to counter rising inflation. However, this gained momentum after the mini budget at the end of September.

UK borrowing costs rose as investors sold their UK government bonds – known as gilts – before the Bank of England announced a £65bn bond buying program to bolster the market.

Swaps on the rise: Swap interest rates are slowly rising after a brief decline at the start of the year

Swaps on the rise: Swap interest rates are slowly rising after a brief decline at the start of the year

Swaps on the rise: Swap interest rates are slowly rising after a brief decline at the start of the year

After former Prime Minister Liz Truss resigned in October and new Chancellor Jeremy Hunt reversed nearly all mini-budget announcements, markets calmed down and the cost of borrowing fell, while mortgage rates also slowly fell.

It’s worth keeping an eye on prices, though, as swap rates, the financial metrics on which most lenders base their mortgage prices, are rising again.

Where are mortgage rates now?

After a short-lived interest rate war when a number of headline firm deals fell below 4 percent, many lenders are now putting them back on the market.

Platform pulled its 3.75 percent rate for a five-year fixed deal less than 48 hours after it went public, as swap rates rose.

Others follow suit. On Monday (March 13), Coventry Building Society rates will rise for all standard two-, three- and five-year mortgages. Barclays has also increased its rates on a selection of its two- and five-year fixed rate products.

However, there are still competitive deals on the market. Yorkshire Building Society offers a five-year flat rate of 3.98 per cent for those with deposits of 25 per cent or more. The Cumberland offers a similar loan for the same rate up to 60 percent loan by value.

What to do if you need a mortgage

Borrowers who need to find a mortgage because their current fixed-rate contract is about to expire, or because they have agreed on a home purchase, should explore their options as soon as possible.

This is Money’s best mortgage interest calculator powered by L&C that can show you deals that match your mortgage and property value

What if I have to borrow again?

Borrowers should compare rates and speak with a mortgage broker and be prepared to trade to secure a rate.

Anyone with a fixed-rate deal expiring in the next six to nine months should research how much it would cost them to re-mortgage now — and consider getting a new deal.

Most mortgage agreements allow fees to be added to the loan and are not charged until it is closed. By doing this, borrowers can secure a rate without paying expensive arrangement fees.

What if I buy a house?

Those with an agreed home purchase should also aim to secure rates as soon as possible so they know exactly what their monthly payments will be.

Homebuyers should be careful not to overextend themselves and be prepared for the possibility that house prices could fall from their current highs, due to higher mortgage rates limiting people’s borrowing capacity.

Compare mortgage payments

The best way to compare mortgage rates and find the right deal for you is to talk to a good real estate agent.

You can use our best mortgage interest calculator to display deals that match your home value, mortgage size, term and fixed interest needs.

However, bear in mind that rates can change quickly, so if you need a mortgage it’s advice to compare rates and then speak to an estate agent as soon as possible so they can help you find the right one mortgage for you.

> Check out the best fixed rate mortgages you can apply for

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