FCA: Rising tide of mortgage distress, and guidance for lenders

Sarah Coles, head of personal finance at Hargreaves Lansdown, comments on the FCA release of figures and new guidance for lenders, showing rising tide of mortgage distress.

FCA statistics:
    • 356,000 more people with mortgages could face payment problems by the end of June 2024. This is down from early estimates, but remains significant.
    • Those moving from a fixed rate could pay £340 a month more on average. 
    • Londoners and those in the South East are most likely to be stretched.
Hargreaves Lansdown Savings & Resilience Barometer statistics:
    • By the end of the year, 26% of mortgage payers will be at risk of default – over 2 million.
    • 650,000  are at ‘high risk’ because they are not only face a dangerous hike in their mortgage payments, but they don’t have emergency savings to protect them.
    • 347,000 are at ‘critical risk’, because on top of the extra costs and savings shortfalls, they’re already spending more cash each month than they have coming in.
    • Singletons, older people and Londoners are particularly at risk.
    • Remortgaging in 2023 will swallow an extra 3.1% of your income after tax – £2,120 a year.
    • The full report is available online.
Sarah Coles says:

“We’re seeing a rising tide of mortgage distress this year, as higher rates plunge borrowers into financial hot water. 

“The FCA has published guidance showing how lenders need to support people in this position, and is encouraging borrowers to ask for help.

“It also published figures showing the scale of the problem, reflecting the horrible issues our own research has uncovered.

“The FCA has found that 356,000 more people could face payment difficulties by the end of June 2024. This reflects findings from the HL Savings and Resilience Barometer, which identified that 2 million people could be at risk of arrears by the end of the year.

“The Barometer also allows us to look at the finances of those in this position, and the findings are even more alarming. 650,000  are at ‘high risk’ because they are not only facing a dangerous hike in their mortgage payments, but they don’t have enough emergency savings to protect them.

“Meanwhile, 347,000 are at ‘critical risk’, because on top of the mortgage hit and lower savings resilience, they are spending more cash each month than they have coming in.

“Like the FCA, we found that Londoners are more vulnerable – with 39% of those remortgaging this year being classed as at risk.

“Those in the south east aren’t much better off with more than 30% at risk. House prices in these areas shoulder the bulk of the blame, forcing buyers to spend a significant chunk of their income servicing their debts.

“We also found that singletons were three times more likely to be at high risk and more than five times as likely to be critical risk than couples, and that baby boomers with mortgages also face huge challenges: they’re one and a half times as likely to be at high risk and twice as likely to be at critical risk.

“If you’ve cut your spending to the bone, and still can’t work out how to afford the mortgage, it can feel like you have no options left, but your mortgage lender may be able to help. If they try to contact you, don’t assume they’re just hounding down the money.

“The FCA has laid out guidance for how they should help those who are struggling – including options like extending the mortgage term or cutting monthly payments for a while.

“The sooner you make contact the better, ideally before you’ve missed a payment. They can take you through the options and you may well be able to find a more manageable solution.

“It’s better than letting your problems build – and is far better for your credit record too.

“If the thought of talking to your lender is overwhelming, you don’t have to manage on your own.

“Debt charities like StepChange know the systems really well and can help you navigate them.”

 

Kindly shared by Hargreaves Lansdown

Main article photo courtesy of Pixabay