Mortgage Charter

The HM Treasury has published a press statement to announce the initiation of a new Mortgage Charter which was agreed upon and drawn up by the UK’s largest mortgage lenders, the Financial Conduct Authority (FCA), UK Finance, the local association for banks and other financial service companies, and the UK government. The charter may be viewed as a form of a „Code of Conduct“ in that it outlines a set of standards participating institutions (banks, building societies, other mortgage lenders) have committed to adhere to in order to assist residential mortgage borrowers who are or will be affected by high interest rates in their loan arrangements due to the currently high inflation rate.
It shall be noted in this context that the signing parties (signatories) to the Charter have emphasized that repossession of homes is only considered as a last resort or when it is in the borrower’s financial interests. Lenders have existing measures in place to support customers facing difficulties and will continue to utilize them along with the new measures outlined in the new Charter.
#### The key points of the Charter are as follows:
1. Borrowers can contact their lender for help and guidance regarding mortgage repayments without it impacting their credit file.
2. Customers who are up-to-date with payments can switch to a new mortgage deal at the end of their current fixed-rate deal period without undergoing another affordability check.
3. Lenders will provide timely information to help customers plan ahead if their current interest rate is about to end.
4. Lenders will assist customers facing financial difficulties in finding alternative options to service their loans. Such options may in include an extension of the mortgage period to reduce monthly payments, the switch to „interest only“ payments for a specified period of time, or a deferral of payments altogether. The best option will be evaluated for each customer individually.
5. From June 26, 2023 onward, borrowers will not have to leave their homes without their consent unless there are „exceptional circumstances“ or unless they have missed their monthly payments for more than a year.
6. Starting from July 10, 2023, customers who are nearing the end of a fixed rate loan arrangement will be given the opportunity to secure a new loan agreement up to six months in advance. Additionally, they will have a chance to request a similar and improved deal from their lender until the commencement of the new term, provided one will be available in the meantime.
7. A new agreement between lenders, the FCA, and the government allows customers who are up-to-date with their mortgage payments to switch to interest-only payments for six months or extend their mortgage term to reduce monthly payments. Latter option is accompanied by the possibility to revert to the original terms of the loan arrangements within six months. Customers who want to take advantage of the beforementioned options do not have to undergo a new affordability check or fear corrections to their credit scores.
#### Next steps
The lenders, UK Finance, and the FCA have made a commitment to swiftly implement the comprehensive Charter. The aim is to provide borrowers with access to the new measures as soon as possible. This will require making necessary changes to the FCA Rulebook and lenders‘ procedures. The lenders and the FCA will work expeditiously to adopt the required rules and provide an update on progress by Friday, June 30, 2023.
Furthermore, the Prudential Regulation Authority (PRA) has confirmed that the agreed measures in the Charter are not expected to result in an immediate or automatic increase in capital requirements for banks, depending on the circumstances. Additionally, a communication campaign will be launched by participating mortgage lenders, led by UK Finance, to ensure borrowers are well-informed about what to anticipate when contacting their lenders.