FG23/2: Guidance for firms supporting existing mortgage borrowers impacted by rising living costs

On March 10, 2023, the Financial Conduct Authority (FCA) published a new guidance addressed at mortgage lenders to support them in their dealing with mortgage borrowers that are affected by the rising cost of living as a consequence of high inflation and likely to be affected by rising interest rates on their mortgages – especially those that are currently rolling over their loans or will be doing so in the near future. The final guidance is based on a draft version that was consulted on in December 2022 (please see EventID 18869 in this context for more information). It also includes the feedback, the FCA has received to its consultation and the response of the regulator to such feedback (Annex 1, page 7 forward).
Specifically, the new guidance sets out measures that are legitimate to use by firms, that is without violating any current rules and regulations, to support their customers in this very difficult situation. The guidance thereby also addresses issues to be considered by firms when applying any such measure.
The noted measures include, for instance, the variation of existing contracts to include provisions that require (temporarily) the payment of interest only or that extend the current mortgage period to lower monthly payments. In this context, it is essential, so the FCA, that the customer clearly understands the implications of any such contract variation and that the variation takes into account – far and foremost – the interest of customers. Another possible measure is to switch the interest rates on existing, but expiring contracts, e.g. from a fixed rate to another fixed or variable rate. Here, too, firms need to ensure that the customer is aware of all of its options and gets all necessary information in a timely manner.
For all measures noted above, the FCA also describes whether or not a new affordability test must be conducted and the corresponding Handbook provisions that apply in this context.
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Additionally, the FCA has published the findings from recent research in this area which was taking into account when formulating the guidance. The research looked at the impacts of rising interest rates and a rising cost of living on the affordability of mortgages and related default risks.