Despite the recent drop in inflation, the rate remains high at 6.8% and considerably higher than the longer-term average of 2.80%. So, what does it mean for borrowers?
Well...The misery looks set to continue long into 2024.
Fourteen consecutive interest increases by the Bank of England (BoE) have hit mortgage rates hard. This means higher borrowing costs for many households at a time when 66% of adults in Great Britain reported an increase in their cost of living from July to August 2023.
Last week, the Financial Times reported UK mortgage arrears jumped to a seven-year high. With approximately 2.4 million customers about to exit their fixed rates deals between now and the end of 2024, we’ll likely see the number of customers in arrears increase and further strain inflicted on UK households.
With the average 2-year fixed rate at 6.55%- and 5-year fixed rate at 5.97%, the Resolution Foundation predicts an average increase of £2900 in repayments. An eyewatering amount when customers are already struggling.
What can lenders do to help customers?
Lenders, intermediaries, and brokers can take several steps to ensure that borrowers exiting their fixed mortgages in the next 12 months get a new deal right for them that aligns with Consumer Duty and the Mortgage Charter.
These steps are aimed at providing borrowers with fair and transparent options while promoting responsible lending practices:
- Early communication is key: Lenders should proactively reach out to borrowers whose fixed-rate mortgages are nearing the end of their term. This communication should start well in advance, ideally at least 6 to 12 months before the fixed rate ends. This helps borrowers understand their options and plan ahead.
- Clear and transparent information: Lenders should provide clear and easily understandable information about the different mortgage deals available to borrowers. This includes details about interest rates, terms, fees, and any potential changes in monthly payments.
- Personalised advice: Lenders should offer personalised advice to borrowers based on their individual financial situation and needs. This may include discussing whether a fixed or variable rate is more suitable, the potential impact of changing interest rates, and the benefits and risks associated with different mortgage products. Education will help consumers make the choice that’s right for them.
- Fair and competitive offers: Lenders should offer competitive mortgage deals that align with market conditions. This ensures that borrowers have access to attractive options and are not penalised for their loyalty to the lender.
- Assessment of affordability: Lenders should conduct a thorough affordability assessment to ensure that borrowers can comfortably afford the new mortgage deal. This includes assessing the borrower's income, expenses, and any changes in their financial circumstances.
- Flexibility: Lenders should provide flexibility in mortgage terms to accommodate borrowers' changing needs. This may include options for overpayments, underpayments, or adjustments to the term of the mortgage.
- Compliance with Consumer Duty and Mortgage Charter: Lenders should adhere to the principles and guidelines set out in the Consumer Duty and the Mortgage Charter, ensuring that borrowers are treated fairly, honestly, and with respect throughout the mortgage application and renewal process.
- Access to independent advice: Lenders should encourage borrowers to seek independent financial advice if they’re uncertain about their options. This helps ensure that borrowers make informed decisions.
- Timely processing: Lenders should process mortgage applications and renewals on time to prevent unnecessary stress and uncertainty for borrowers.
- Feedback and complaints handling: Lenders should have a robust system in place for handling customer feedback and complaints. This allows borrowers to voice concerns and ensures that any issues are addressed promptly and fairly.
- Education and resources: Lenders can provide educational resources and tools to help borrowers better understand the mortgage process, interest rate fluctuations, and the implications of different mortgage choices.
By taking these steps, lenders can show their commitment to their customers, Consumer Duty and the principles outlined in the Mortgage Charter, ultimately providing borrowers with the best possible options and ensuring they are compliant with responsible lending practices.
Striking the perfect balance
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