Lenders can only offer borrowers ‘one-off’ support under the Mortgage Charter rule, despite the Chancellor’s rallying cries that banks remain committed to the agreement.
Some banks, however, are taking a more flexible approach towards continued support under the charter.
Under the rules, borrowers can be offered either a switch to interest-only payments for up to six months or extend their mortgage term with an option to change back to their original term within six months, without an affordability assessment.
One-off support
But homeowners who have already used one of the measures are not entitled to use the lifeline again with the same lender, the Financial Conduct Authority (FCA) has confirmed.
Last month, Chancellor Rachel Reeves summoned the UK’s six largest lenders and UK Finance to Number 11 to discuss the impact of the war in the Middle East on the finances of households and businesses.
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Reeves gained commitment from the banks to contact the 1.6 million customers rolling off a fixed rate this year to lay out their options ahead of any payment shock. She also reminded them of the “safety net” of measures offered by the charter for any of their borrowers worried about their mortgage.
But no mention was made of this marking a reset of the charter’s rules, and homeowners have not been told the support is a one-time only deal.
“The government’s Mortgage Charter includes commitments for lenders to provide one-off help for borrowers coming off low fixed rate deals and facing a sharp increase in costs,” said a spokesperson for the FCA when Mortgage Solutions asked for clarity over the rules, following the Chancellor’s reaffirmation of the charter’s support.
Karina Hutchins, acting director of mortgages for UK Finance, added: “Mortgage Charter support can be very helpful but isn’t available in all circumstances – a customer must be up to date with their mortgage payments, and since it was introduced in 2023, it can only be used once with the same lender.”
HSBC, Nationwide and Barclays all confirmed using the interest-only switch or term extension without affordability checks was a one-off arrangement. Mortgage Solutions understands that NatWest would not rule out further support even if the borrower had already used the measures. Santander and Lloyds Banking Group said it was down to the individual’s circumstances. All the lenders offer specialist support to borrowers struggling with mortgage repayments.
Lack of clarity
Nicholas Mendes, mortgage technical manager at John Charcol, said he was surprised to learn borrowers could only use the measures once.
He continued: “It had not been clear that some lenders were capping this as a one-time option over the life of the mortgage with that lender.
“The headline messaging around the Mortgage Charter makes it sound like a clear safety net, so if most lenders are treating a switch to interest-only or a term extension as a one-chance option in practice, that is not something many borrowers will have realised. It may also be something they would not have properly considered if it was not made clear by the lender when they used it previously.”
He added: “It is probably not widely known among the public, and it may not be universally understood more broadly either. Most people will have taken away the general message that support is there if payments become difficult, not the finer point that some of those options may only be available once under the charter route.”
Mendes said this clarity mattered even more now that rates were rising, because some borrowers may wrongly assume they can use the charter as a fallback option should they need to.
Samantha Lindsay of My Mortgage Angel said there was a lack of awareness among the public in general about support available under the charter for borrowers struggling with sharp rises in interest rates.
“Most clients that I explain this to have never heard of the scheme before, let alone understand how it works,” she said.
Interest-only limits
Chris Sykes, director and property finance specialist at MSP Financial Solutions, said that although the charter rules were designed to be used once, actions like a term extension may be considered by a mortgage lender at any stage.
He thinks it is a sensible to limit the use of switching to an interest-only payment basis.
He said: “By switching to interest-only, you are kicking the can down the road, making your future payments more expensive for the remainder of your term, so it is only something that should be used in a real emergency, unless you have another way of paying back the mortgage.
“If lenders let people keep going onto interest-only, it could cause issues later on. For example, negative equity if the loan is just increasing because of this, or payments then becoming unaffordable once the interest-only period has finished.
“I don’t think that the public are widely aware that many lenders are still offering the flexibilities of the Mortgage Charter, as most people will have remembered this more of a post-Covid policy rather than a long-term one.”
The Treasury was approached for comment but did not respond.