Proactive Investors - Homeowners struggling to pay their mortgage bills will be able to switch to interest-only deals without a formal repayment plan to help borrowers through the cost of living crisis under arrangements being drafted by the Financial Conducts Authority.
Customers will be able to ditch repayment loans for a temporary period under the plans being laid out by the City watchdog.
It announced the plans on Wednesday after attending a roundtable with lenders and the government to discuss ways to help mortgage borrowers as fears of arrears mount.
The FCA guidance said the plans would help lenders prepare for “providing mortgage forbearance at scale”.
We've published guidance setting out options firms can use to support #mortgage customers and have provided new information for borrowers affected by rising prices https://t.co/Ame8fcqR38— Financial Conduct Authority (@TheFCA) December 7, 2022
Interest-only deals were once prevalent but became heavily regulated after millions of borrowers were sold deals before the financial crisis with no plan on how to repay the capital.
However, some 1.8mln homeowners will come to the end of fixed-rate deals in 2023, according to banking trade body UK Finance, and will have to refinance at far higher rates, in some cases quadruple their previous deals.
The planned FCA guidance advises lenders to let homeowners who are at risk of payment shortfalls switch to an interest-only loan without an agreed repayment strategy.
For a permanent switch to an interest-only basis, a credible repayment plan would still be required, the FCA said.
After the meeting between the government and banks, the chancellor Jeremy Hunt said it was his number one priority to tame inflation for the British public.
He added: “UK lenders have a part to play in that. We expect every lender to live up to their responsibilities and support any mortgage borrowers who are finding it tough right now.”
The FCA is now consulting on the guidance over the next 10 days.