Money saving guru Martin Lewis says guidance on how mortgage providers can help struggling borrowers is a bit like an "empty sandwich". He is however hopeful new measures put lenders in a position to offer "quick-fire support" in the event of future interest rate shocks.
It comes as the Financial Conduct Authority (FCA) forecast an additional 356,000 mortgage borrowers could struggle to pay by the end of June 2024. This is however a reduction from previous forecasts, which thought the number could be around 570,000.
The estimate was revised downwards due to changes in market expectations of the Bank of England base rate. The previous analysis was based on market expectations in September 2022, which saw the bank rate peaking at around 5.5%, as opposed to a peak of around 4.5% in the February expectations, used to calculate the most recent estimate.
Among this group, those rolling off a fixed-rate deal could end up paying an additional £340 a month on average, according to the regulator. Around 200,000 mortgage borrowers were in payment shortfall as of June 2022.
The FCA released the latest estimate as it confirmed finalised guidance, setting out the ways that mortgage lenders can help customers worried about or already struggling with their mortgage payments because of the rising cost of living.
The regulator expects firms to support people in financial difficulty. The guidance covers options such as extending the term of their mortgage or making reduced monthly payments for a temporary period.
Making changes, even temporary ones, may result in higher monthly payments in future or paying back more overall. Mortgage borrowers should consider carefully any steps they take and customers who can keep up with their payments should continue to do so, the FCA said.
Sheldon Mills, executive director of consumers and competition at the FCA, said: “Our research shows most people are keeping up with mortgage repayments, but some may face difficulties. If you’re struggling to pay your mortgage, or are worried you might, you don’t need to manage alone.
Subscribe here for the latest news where you live
“Your lender has a range of tools available to help. Get in touch as soon as you have 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.”
The FCA’s research indicated that borrowers aged 18 to 34 are more likely to be financially stretched than the rest of the working age population. Those living in London and the South East, where house prices are often higher than the UK average, are also particularly likely to be stretched.
Being stretched does not necessarily mean borrowers will miss payments as some will be able to use savings, reduce spending or increase incomes to help meet their mortgage commitments. As well as contacting their lender for support, worried borrowers can also visit MoneyHelper for money tips, budgeting tools and to find free debt help.
The FCA, major lenders and consumer representatives attended a mortgage summit in December. Since then, the FCA said it has continued to work with lenders to help borrowers get the support they need, including timely communication.
Lenders have proactively contacted customers a combined total of 16.5 million times, across a range of channels, to offer support in the past year, the regulator said. They expect this to increase this to 20.5 million contacts over the next year.
Lenders supported more than two million customers to manage their finances in the past year, including through budgeting tools, access to debt advice, and tailored mortgage forbearance. The FCA said it will continue to monitor the mortgage market and how firms are supporting their customers.
Martin Lewis has however said there is "not much meat" in the measures suggested by the FCA. He said: "This FCA initiative is a thin sandwich – lots of bread but not much meat. It is primarily about clarifying guidance, which is needed, rather than any new measures.
"It was born out of last December's mortgage summit, called by the Chancellor Jeremy Hunt, on the back of warnings of a potential ticking time bomb of both unaffordable high rates coupled with remortgage rejections due to the cost of living squeeze. As the only person invited not from a bank or regulator, I raised a number of tweaks, changes and improved communication as relief measures to get customers over a tricky time.
"Few of those have materialised. Some of that is for good reason. The worst case scenarios back then were dreadful, and the key to the meeting was being prepared for the worst.
"Thankfully, mortgage rates and interest rates haven't risen as high as they could have, so the need for urgent measures is less profound. Most who could afford to pay their mortgage then still can, even if it's tight. Yet it's also because getting any innovation through a body of lenders and regulators is tough. My hope is, as work has been done in the background, this carries on so there's a nimbleness and an ability to act in the event mortgage rates were to rise further."
