Government action plan with regulators to support consumers

On 28 June 2023, the Chancellor of the Exchequer, Jeremy Hunt, chaired a roundtable with CEOs from the Competition and Markets Authority (CMA), the FCA, Ofcom, Ofgem and Ofwat. A new action plan with the regulators was agreed to ensure consumers (particularly vulnerable consumers) are being treated fairly and help those struggling to make payments. Key measures include the FCA agreeing to:

• Deliver better deals for savers by driving competition, including reporting by the end of July on how the savings market is supporting savers to benefit from higher interest rates. The action plan states that the government fully supports the FCA’s review and makes the point that the new Consumer Duty gives it stronger powers to take action if necessary.
• Require the largest banks and building societies as part of this to explain the pace and extent of their pass through of interest rates, and how they are proactively supporting savers to switch to high interest rate products.

The CMA’s commitments include one to actively scrutinise markets where cost-of-living pressures are growing and launch work in at least two new areas the CMA considers in need of further investigation. It will also update on key developments in its ongoing crackdown on misleading consumer practices.

The regulators agreed to provide regular updates to HM Treasury on their progress and that a follow-up meeting would be held later this Summer.

The FCA, Ofcom, Ofwat and Ofgem also published a joint Dear CEO letter setting out shared expectations on treatment of customers in financial difficulties. Expectations include making it easy for customers to get the support they need, and tailoring support so it’s appropriate to the customer’s circumstances. According to the letter, as an immediate next step the regulators will consider what their shared expectations are in relation to debt collection across different sectors.

In addition, the FCA published a press release summarising its commitments under the action plan and recapping on its work to help consumers to date, including the fact that it is working quickly to update its rules to support the mortgage lender commitments made to the Chancellor on 23 June (see below).

Treasury Committee letters to major banks and FCA on savings rates and Consumer Duty

As part of its on-going inquiry into retail banks, the House of Commons Treasury Committee has written to the biggest high street lenders and the FCA about savings rates. Among other things, the Committee has asked the banks whether they are confident that their current savings products are in line with the new Consumer Duty. Questions to the FCA include how ‘fair value’ for customers will be assessed, and what enforcement action can be taken if firms do not comply with the Consumer Duty.

New Mortgage Charter to support residential mortgage customers

In light of the current pressures on households from inflation and interest rate rises, and following the commitments agreed to support borrowers in December 2022, on 23 June HM Treasury announced that it has agreed new support measures for mortgage holders with the FCA and the UK's principal mortgage lenders (covering over 75% of the market). For more on the December 2022 commitments, take a look at our Engage article 'UK FCA consults on mortgage support guidance as cost of living starts to bite borrowers'.

According to the Chancellor, there are two groups of people that the government is particularly worried about: (1) people who are at real risk of losing their homes because they fall behind in their mortgage payments; and (2) people whose fixed rate mortgage is coming to an end, and they’re worried about the impact on their family finances of higher mortgage rates.

The Mortgage Charter policy document, which was published by HM Treasury on 26 June, contains more details of the set of standards that lenders will adopt when helping their regulated residential mortgage borrowers worried about higher rates. Key points include:

• Anyone worried about their mortgage repayments can contact their lender for help and guidance, without any impact on their credit file and are encouraged to contact their bank who are there to help.
• Support for customers who are up-to-date with payments (representing 97% of the mortgage market) to switch to a new mortgage deal at the end of their existing fixed rate deal without another affordability check.
• Lenders will provide well-timed information to help customers plan ahead should their current rate be due to end.
• Lenders will offer tailored support for anyone struggling and deploy highly trained staff to help customers. This could mean extending their term to reduce their payments, offering a switch to interest only payments, but also a range of other options like a temporary payment deferral or part interest-part repayment. The right option will depend on the customer’s circumstances.
• From 26 June 2023, a borrower will not be forced to leave their home without their consent unless in exceptional circumstances, in less than a year from their first missed payment.
• With effect from 10 July 2023, customers approaching the end of a fixed rate deal will have the chance to lock in a deal up to six months ahead. They will also be able to manage their new deal and request a better like for like deal with their lender right up until their new term starts, if one is available.

• There is a new deal between lenders, the FCA and the government permitting customers who are up to date with their payments to:

  • Switch to interest-only payments for six months; or

  • extend their mortgage term to reduce their monthly payments and give customers the option to revert to their original term within 6 months by contacting their lender.

• Customers who are currently in arrears should continue to work with their lender for the support that they need.

• The commitments in the Charter do not apply to Buy-to-Let mortgages.

• The PRA has confirmed that the measures agreed in the Charter are not expected to lead to an immediate or automatic increase in capital requirements for banks, depending on the circumstances.

Changes to MCOB responsible lending and affordability requirements to implement Mortgage Charter

The FCA has subsequently published a policy statement (PS23/8) and The Mortgage Affordability Rules (Amendment) Instrument 2023 containing enabling provisions for the Mortgage Charter. All changes came into effect on 30 June 2023. In summary, the FCA has:

• Amended the responsible lending rules in MCOB 11.6 to enable mortgage lenders to meet their commitments under the Charter. The changes are aimed at securing an appropriate degree of consumer protection by enabling lenders to offer customers swift, temporary reductions in payments and for customers to make an informed choice on their options.

• Provided limited exemptions from its affordability requirements, enabling lenders to allow mortgage borrowers (except for second charge and bridging loan customers) to:

  • reduce their capital repayments (including to zero and paying interest only) for up to six months;

  • fully or partly reverse a term extension within six months of it taking effect.

Both options can be offered without a new affordability assessment by lenders. However, lenders will still need to assess affordability if a borrower wants to permanently convert their mortgage to an interest-only mortgage or extend the mortgage term beyond their expected retirement date.

On-going FCA consultation on changes to create stronger framework to support borrowers in financial difficulty

The FCA is already consulting on incorporating aspects of the Tailored Support Guidance (TSG) introduced during the COVID-19 pandemic into its Consumer Credit (CONC) and Mortgages (MCOB) sourcebooks, as well as proposals for targeted additional changes to support consumers in financial difficulty.  The consultation closes on 13 July 2023. See our Engage article 'UK FCA consults on changes to create stronger framework to support borrowers in financial difficulty' for more on the proposals.

Next steps

Action plan to support consumers

The FCA’s report to the government on how the savings market is supporting savers to benefit from higher interest rates is due by the end of July 2023. As part of this process, the largest banks and building societies should expect to be contacted by the FCA to explain the pace and extent of their pass through of interest rates, and how they are proactively supporting savers to switch to high interest rate products.

An immediate next step under the FCA/Ofcom/Ofwat/Ofgem Dear CEO letter is for the regulators to consider what their shared expectations are in relation to debt collection across different sectors.

Treasury Committee letters to major banks and FCA on savings rates and Consumer Duty

The Committee has requested responses to its letters to the banks by 17 July 2023 and to its letter to the FCA by 14 July 2023.​

Mortgage Charter and related materials

The lender signatories to the Mortgage Charter, UK Finance and the FCA committed to implementing it in full at pace, hence the FCA’s introduction of the above changes to MCOB without consultation. The FCA will review the impact of the changes within 12 months, so by the end of June 2024. It is also planning to update its March 2023 finalised guidance for firms supporting their existing mortgage borrowers impacted by the rising cost of living (FG23/2) as soon as possible in light of the changes.

The FCA’s Consumer Duty coming into force on 31 July will also enable the FCA to support implementation of the Charter by its signatories.

Participating mortgage lenders, led by UK Finance, will launch a communications campaign ensuring borrowers know what to expect when they contact their lender.

Authored by Jennifer Staniforth and Virginia Montgomery.