FCA requirements – Supporting mortgage customers in financial difficulty


In my last column I focused on the FCA’s Dear CEO letter to Retail Mortgage Lenders and the three key topics the FCA instructed them to consider: supporting customers in financial difficulty, managing maturing interest only mortgages and responsible lending.  This month’s FCA follow up, another Dear CEO Letter, this time titled “The rising cost of living – acting now to support customers” is further evidence of the regulator’s concerns in respect of the increasing debt burden.  The FCA concern is justified, and rightly, wants to ensure lenders are ‘doing the right thing’.  Three questions spring to mind, 1) is there a real problem, 2) is this an issue that only lenders need to consider, and 3) can intermediaries do more too?

UK Finance headlines positively ‘spins’ arrears data for Q1 of 2022, “The total number of customers in arrears with their mortgages continued to fall in the first quarter of 2022”.  It also highlights the reduction in total arrears and in the less serious categories (arrears between 2.5% and 5% of the outstanding balance).  You need to dig into the data to see a clear and significant emerging issue; accounts seriously in arrears are getting worse.  Lenders should consider, are they being lulled into a false sense of security?  Currently, three quarters of homeowner mortgages are on a fixed rate contract, with c96% of new borrowers choosing this option since 2019 and nearly half opting for long term fixed deals.  Therefore, a large number of borrowers will see no immediate increase in their monthly repayments. That’s great in the short term, but the ‘delay’ in payments ‘catching up’ with market rates means that the potential ‘payment shock’ when they do is greater, albeit that the renegotiation may be a few years away.

That’s great in the short term, but the ‘delay’ in payments ‘catching up’ with market rates means that the potential ‘payment shock’ when they do is greater,

How bad could the payment shock be?  UK Finance monthly economic insights show several ‘headwinds’; rising inflation, increasing costs of living, plummeting GDP and reducing retail sales.  Consumer confidence, as measured by research company GfK, is also nosediving.  It fell by two percentage points in May to its lowest level since records began in 1974.  We are starting to see debates around slower house price growth and the ‘R’ word is now appearing in regular financial market commentaries.  The Nationwide Building Society preliminary results statement for the year ending 4 April 2022 states, “There is a risk of a downward movement in house prices, given the pressure on household budgets.”

As the cost of living crisis deepens, and mortgage interest rate predictions are predicted to continue to rise, it is not surprising that the FCA ‘rising cost of living’ follow up letter was sent to 3,500 lenders and providers of credit.  Not including intermediaries who introduce long and short term borrowers to product providers was unfortunate – they play an important role in ensuring vulnerable customers are identified and receive fair treatment.

To its credit, the FCA has consistently issued constructive guidance in relation to the fair treatment of vulnerable customers.  One good example is its ‘finalised guidance’, FG21/1, issued in February 2021, which focuses on the Principles for Business requirement to “treat vulnerable customers fairly”.  FG21/1 further builds on the work by the Money Advice Trust and StepChange Debt Charity and their well-known vulnerability protocol, TEXAS.  It is helpful the way the FCA links the model to firms’ regulatory obligations!

I would also encourage firms to review the work undertaken by the UK Cards Association, “Vulnerability: a guide for debt collection – 21 questions, 21 steps”.  While this may originally have been aimed at firms involved in debt collection, it is succinct and a practical guide for any firm who may be contacted by customers in financial difficulty.  As alluded to earlier, this is not just providers of loans and credit it should include intermediaries.

Answering my own questions,

  1. Yes, this is a real issue and one that will only get worse in the short/medium term
  2. No, this is not just a lender issue
  3. Yes, anyone who has contact with consumers can help ensure vulnerable customers receive fair outcomes.

The messaging from the FCA is clear, it expects firms to be sensitive and sympathetic to the needs of customers.  The challenge for firms is, can they live up to the FCA aspirations.


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Partner - Baxters Business Consultants - a business consultancy undertaking marketing, training, freelance journalism and expert witness services to the residential mortgage lending, building society and financial service industry (April 1993 to date) - www.baxtersbc.co.uk.

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