The Financial Conduct Authority (FCA) has introduced new rules for mortgage lenders to support borrowers still battling the cost-of-living crisis.
This comes as the regulator’s cost-of-living survey revealed a quarter of Brits are still struggling to cope or failing to do so at all when it comes to their finances this year.
From 4 November, lenders will have to consider a borrower’s individual circumstances and overall balance when providing forbearance. This does not mean firms should not allow balances to increase, the FCA said, but should “act in a way that avoids the foreseeable harm caused by an escalating balance”.
The total cost of the product, including fees and charges added to the balance, should also represent fair value.
Firms will also be expected to broaden the support options available and extend these to people at risk of payment difficulty, not just those who have missed payments.
Borrowers in arrears should receive statements on a quarterly basis at a minimum, not just when the arrears or shortfall are attracting charges.
The FCA is also building on its tailored guidance support with the introduction of guidance that helps firms determine “necessary and reasonable” costs when setting fees and charges.
Lenders will also be given more scope to clear a payment shortfall by adding it to the total amount owed, which should enable borrowers to access new products and build their credit score.
Cost-of-living challenge continues
The number of people struggling to pay bills and credit repayments stands at 7.4 million, which, while a drop from 10.9 million, still represents over 10% of the UK.
This is also higher than before the cost-of-living crisis started in 2020, when 5.8 million said they were straining to pay for bills and credit repayments.
Generally, the number of households in a worse position financially is less than last year, according to the FCA’s Financial Lives survey. However, millions are still making sacrifices to survive.
While a million fewer people than in 2023 are falling behind on their domestic bills, 11% of the UK has still done so within the last six months.
Single adults with children (55%) and renters (50%) were the most likely groups to be finding it hardest to cope financially, while the other groups with a higher proportion of financial struggles were:
- Adults from low-income households
- Unemployed adults
- Others not in work, such as the long-term sick and unpaid full-time carers
- Those living in the North of England and the most deprived areas of the UK
Reductions on investments, savings and pensions
The picture is the same with the amount of cash Brits are either investing, saving or adding to their pension too.
Almost half (44%) of the 3,450 respondents said they halted saving or investing just to make ends meet, while a quarter (23%) used their funds just to cover everyday spending.
Over half (53%) made either of those decisions in the 12 months before January 2024, which is only 3% less (56%) than those who did so in the six months leading up to January 2023.
Meanwhile, 1.8 million workers ceased their pension contributions to continue making ends meet. A separate Pensions Management Institute (PMI) study found that nearly half of workers have already amended their retirement plans because of the cost-of-living crisis.
‘Many experiencing financial squeeze’
Myron Jobson, senior personal finance analyst at Interactive Investor, says that despite improvements, “in reality, many households are still experiencing a financial squeeze on several fronts.”
Jobson said: “While inflation is now at the lowest level in two years, we aren’t out of the financial woods yet. After 14 rate hikes, interest rates are now at their highest level since 2008, which means that Britons are paying more for mortgages, credit card debt and other loans than they might have paid in the past.
He added: “Thankfully, prices aren’t climbing as quickly as they once were, but the headline inflation figure remains almost double the Bank of England target level.
“The stark reality is financial progress for many feels stagnant, but there is a lot to feel optimistic about in regard to personal finances.”
The cutbacks, while not as frequent as last year, still continued for many as a way of affording their basic household needs.
Electricity, gas and heating sacrifices
Around half (48%) said they had reduced their food shopping to save cash, and 52% did the same with their electricity, gas or heating. This figure might mark a drop from those who did so in January 2023 (71%), but it still represents over 27 million people.
The financial situation of many also took its toll mentally, with 43% suffering from anxiety or stress due to the cost-of-living crisis and a fifth suffering in some way with their mental health in 2023.
When people struggled with their finances, only a third (29%) sought help from their provider when they fell behind with any bills.
But, for mortgage holders, there was a rise in those who asked for a reduction in repayments or even a payment holiday. Just 0.4% did so in the last six months of 2022, but this rose to 1.6% in 2024.
FCA cracking down on unhelpful banks
Sheldon Mills, executive director of consumers and competition at the FCA, said: “Our research shows many people are still struggling with their bills, though it is encouraging to see some benefitting from the help that’s available.
“If you’re worried about keeping up with payments, reach out to your lender straight away. They have a range of support options and will work with you to agree on the best one for you. You can also find free debt advice through MoneyHelper.”
He added: “The FCA has reminded financial firms they must support their customers and work with them to manage payment difficulties. The regulator has cracked down where firms haven’t met its expectations, securing nearly £60m in compensation for 270,000 customers.”
Mills also said the regulator “is making permanent the expectations on lenders to support borrowers in difficulty, which were introduced during the pandemic, with additional targeted changes designed to improve outcomes for consumers.”
‘Victory claimed’ by government and Bank of England questioned
Alastair Douglas, CEO of Totally Money, said: “While the government and Bank of England are claiming victory against the cost-of-living crisis, one in four people are struggling to manage financially. And, worryingly, it’s impacting those on lower incomes, renters, single parents and the unemployed the hardest.”
Douglas added: “The regulator needs to put pressure on lenders to reach out to struggling borrowers and offer support. Most of the banks have profited from the volatility of the past two years, and it’s time for them to put customers’ best interests first. If we don’t, we’ll see the consequences of Covid and the cost-of-living crisis continue to impact people’s lives for years to come.”
Related: Renters hit harder than mortgage borrowers by cost-of-living crisis
