Just over a year ago the Chancellor of the Exchequer announced, with much fanfare, a new ‘mortgage charter’ [‘the Charter’]. At the time there was a wide range of industry challenge. At one end of the scale, there were those who suggested that the policy was a political stunt as lenders already offered the ‘agreed’ forbearance steps. At the more constructive end of the comment scale, there was an acknowledgement that while many lenders may, to a greater or lesser extent, have already offered many (or all) of the measures, signing up to the Charter committed them to what effectively became consumer ‘rights’ to all mortgage borrowers, who were up to date with their payments but struggling. When the Charter is considered alongside the FCA Consumer Duty requirements, any independent observer must surely acknowledge that whether lenders did, or didn’t, already apply the Charter measures isn’t the relevant issue. The core issue is, are potentially vulnerable consumers better protected by the formal adoption of a charter? And a year on, is the Charter delivering fairer outcomes for consumers?
while there are many more mortgage firms than the 49 who have signed up to the Charter, those that have committed represent 90% of the mortgage lending market
It’s worth acknowledging that while there are many more mortgage firms than the 49 who have signed up to the Charter, those that have committed represent 90% of the mortgage lending market. Such a large penetration, is good for borrowers as most borrowers now benefit, if they are up to date with their payments, from:
- not being forced to leave their home without their consent within a year from their first missed payment, unless in exceptional circumstances,
- the ability to lock in a new deal up to 6 months ahead of the end of a fixed rate commitment, and to request a better like-for-like product up until the new one starts, if one is available, and
- the ability to switch to interest-only payments for 6 months, or to extend the mortgage term with the option to revert to the original term within 6 months, without the need for a new affordability assessment.
It is challenging for the FCA to obtain definitive Charter impact data, as some mortgage firms will be unable to differentiate between Charter specific support and general business as usual [‘BAU’] support/forbearance; which they are most likely to have offered anyway. This can be particularly tricky when customers lock in fixed rates while arranging fixed rate product transfers. This has been common practice for some time and is really BAU, but it will skew the collected data to some extent. Additionally, it is difficult to estimate the total number of mortgages that have taken up more than one of the Charter options, as it is possible that there is some overlap between customers who have locked in a new deal and those who have extended their term or switched to interest-only payments.
Despite the data limitations, the FCA has confirmed, in its first annual Charter update, that:
- around 1.1 million mortgages benefited from one or more Charter options, either via specific Charter elections or via forbearance BAU
- around 113,000 mortgages have temporarily reduced monthly payments via the FCA Charter agreement, and
- between July 2023 and April 2024, the monthly payments on around 159,000 mortgages were reduced as borrowers switched to temporarily paying interest-only or extended their mortgage term, that’s just short of 2% of all regulated mortgage contracts.
The FCA data shows that, in terms of consumer outcomes, the Charter has not been a political stunt and that it has, in fact, been a great success, with significant measurable consumer benefits.
Despite the Charter success, UK Finance arrears data shows that arrears keep ticking up little by little. The positive is they are not increasing at the rate that some commentators had predicted, when interest rates started to increase, and repossessions have not followed historic paths. Is the slower increase rate, compared to other downturns, attributable to the Charter benefits or is it that lenders have adopted more robust stressed affordability tests since the last mortgage market crash? Whatever ‘weight’ is applied to each of these factors the Charter has, identifiably, helped a substantial number of individual households, and all other householders because of increased market stability.
