How well do providers measure up on the FCA’s new recommendations for supporting mortgage borrowers?

On 10 March, the Financial Conduct Authority (FCA) announced that 365,000 mortgage holders could face payment difficulties by the end of June 2024, due to rising interest rates.

To help address this, the FCA has set out a series of recommendations that lenders can follow to support customers experiencing financial difficulty and ‘financial stretch’ – when more than 30% of their gross household income goes toward mortgage payments and they are not currently in payment shortfall.

These recommendations include:

• Extending the term of mortgages
• Switching to interest-only for a temporary period
• Moving to a different interest rate
• Allowing borrowers to temporarily make reduced payments
• Clearly signposting tools offered by the lender and other organisations that borrowers can use to gauge whether they need to call an expert to talk through their options

These recommendations build on the measures that were introduced during the pandemic to support mortgage borrowers in financial difficulty. They also feed into the FCA’s three-year strategy for improving firms’ standards when it comes to supporting struggling borrowers.

To assess how prepared lenders are for this new FCA guidance, we looked at 12 of the largest mortgage lenders in the UK and five smaller lenders* to see how well they signposted support for customers who are financially stretched.

Using FCA guidance as framework, we analysed the lenders’ websites, both to assess compliance and to highlight best practice. We focused on websites, because they are likely to be one of the main ports of call for customers seeking support, meaning that having an informative and easy-to-navigate website is essential for good customer service.

It is important for lenders to have dedicated pages with targeted information for mortgage borrowers who are in need of support.

We found that only 47.1% of the lenders in our sample had a dedicated mortgage support page. Many firms had only generic help pages covering multiple products. In our view, these generic pages are less useful than mortgage-specific pages, since having a single page that covers multiple products increases the risk that customers will struggle to find the information they’re looking for.

Some smaller lenders, such as Habito and Stafford Railway Building Society, have no information for customers struggling financially on their website. While we understand that smaller providers may have fewer resources for customer support, they ought still to direct customers towards independent services like Money Helper, which the FCA recommends as a support site for customers who are concerned about missing or have missed payments.

We also looked at how many lenders explicitly suggested that both people who were at risk of missing a payment and those who had already missed a payment should get in touch.

We found that providers with targeted support pages for mortgages were more likely to give detailed information about at what stage customers should get in touch to talk through their options with an expert.

Providers with a single ‘money troubles’ page, on the other hand, often didn't go into detail about any single product, meaning that they did not explain specific situations when customers should get in contact.

While the FCA states that it expects lenders to be transparent about the range of forbearance options available to struggling customers, there is no obligation for providers to detail such options on their websites, so long as they are thoroughly covered over the phone by experts.

In our view, lenders should still make forbearance options clear to customers on their websites, since this reassures borrowers that there are potential options to discuss over the phone, increasing the chance they make the call in the first place. It also gives borrowers an opportunity to learn about their options ahead of the call, which improves their understanding of potential solutions.

We found that only 52.94% of the lenders we examined listed at least one of the above forbearance solutions in their support pages.

Of the lenders, HSBC was the best in terms of letting the borrower know what options might be available to them if that contact their experts for support -https://www.hsbc.co.uk/mortgages/help-with-mortgage-payments-as-living-costs-rise/

Another area that providers can improve is making it clear that contacting a lender to discuss money difficulties does not affect a customer’s credit score. The FCA previously found that 47% of borrowers in financial difficulty mistakenly believed that simply contacting lenders about the support available would have an impact on their credit file. We did not find any lenders who explicitly made this clear when signposting their phone support line on their websites.

Budgeting tools, calculators, and financial wellbeing scores are useful for borrowers, since they allow them to determine their level of financial risk. This, in turn, can help them identify whether or not they need support, meaning that the right customers get in contact with support services.

While almost all lenders have interest rate calculators, there is still work to do when it comes to providing benefit and financial wellbeing calculators.

An area marked for improvement by the FCA in their review of support standards following Covid was lenders’ ability to help customers consider money guidance and debt advice. There is still work to be done when it comes to clearly signposting independent services, as the chart below shows.

We would particularly like to see a more concerted effort to acknowledge the links between financial struggles and mental health with clear signposting to free mental health support services such as Mind.

Based on our review, we make the following recommendations to support customers accessing the correct level of support through lenders' websites:

• Create a dedicated mortgage support webpage.
• Have clear information for people who are both at risk of missing a payment and those that have missed a payment.
• Make it clear that both borrowers who are at risk and those that have missed a payment should contact the provider’s helpline for further support.
• Make it clear on pages with information on helplines that contacting the lender for support does not affect borrowers’ credit ratings.
• Clearly list the potential forbearance options available to borrowers struggling to meet their monthly payments before the borrower gets in touch with an expert.
• Clearly signpost how customers can access free services for support with their mental health, debt, and other money worries.

* The larger lenders examined were Barclays, First Direct, Halifax, HSBC, Lloyds Bank, Nationwide, NatWest, Santander, TSB, Virgin Money, Yorkshire Bank and Yorkshire Buildings Society. The smaller lenders were Habito, Handelsbanken, Stafford Railway Building Society, Tipton & Coseley Building Society and Marsden Building Society.

Fairer Finance has a range of tools and services to help firms meet the requirements of the FCA's Consumer Duty. For more information contact corporate@fairerfinance.com