Martin Lewis: The new mortgage 'forbearance' help – how big a change is it, is it mandatory?

On Friday, the Chancellor, regulator the Financial Conduct Authority (FCA), and bosses of the UK's major mortgage lenders agreed a new package of forbearance measures to help some with mortgage troubles (this was updated on Tuesday 26 June with the mortgage charter).

There are many questions flying around over what this means, so I want to bash out some provisional answers I have.

To set the scene, let me start by repeating the instant formal response I put out five minutes after being told the headline...

"The unprecedented steep rise in mortgage rates is causing a nightmare for many with variable mortgages and those coming off fixes. Therefore, the most important thing we can focus on right now is appropriate, flexible forbearance measures. While the Bank of England's aim is intended to squeeze people's disposable incomes, no one wants people's lives to be ruined by arrears and repossessions – and that is the urgent protection we need to focus on.

"I met the Chancellor on Wednesday and reiterated that the minimum we needed was to ensure that when people asked for help from lenders, they knew that if things changed, it wouldn't be detrimental to their financial situation and their credit scores would be protected as much as possible.

"I'm pleased to see it looks like the Chancellor has listened."

I wrote "it looks like" because five minutes is enough to get the big picture but not to thoroughly examine everything. Even now, after a work day and a weekend, we haven't got full answers, but I am a bit further along the path, so I wanted to explain where things are based on some of the things that have been raised.

Q. Has anything really changed here?
Some lenders are saying "we do this anyway" – there's some truth in that, but it can be misleading. Many lenders offer tailored forbearance measures, pushed for by the regulator, that they can put in place when someone is struggling, yet they all do it differently and there are no hard and fast rules. Indeed, we want such tailored measures to continue, but this is something slightly different.

Under the new agreement, firms will give what is effectively a right to all mortgage borrowers with regulated firms, who are up to date with payments, but struggling...

  • To move for six months to interest-only, or to extend the mortgage term, in order to lower repayments and give some respite.
  • Choosing to do this will not impact your creditworthiness. (Side note: I don't call it a credit score, as credit scores don't really exist.)

The fact this is automatically available from all lenders who've agreed and that it will categorically not impact your credit file is the change. It's worth noting that, especially in the case of term changes, some firms would've seen that as a contractual change, thus not impacted your credit file, but here you have certainty in advance.

This is important both in practice and because it means there can be a clear, universal (sort of, more below) charter of rights for all mortgage holders.

Q. Are there any other changes?
Lenders have also agreed not to push repossessions within a year of the first missed payments, unless the mortgage holder agrees to it.

Also, from 10 July firms have agreed to commit to offering the borrower a new rate six months out from the end of their fix, and the option to switch to a different deal with the same lender if a better option is available before the end of their current deal. This has often been done in the past, but now it is a firm commitment.

It's also been prominently said that you can now "talk to your lender without any credit score impact". That isn't a change at all, though I know the banks were very keen for the message to be put out that people should ask them for help when struggling (a message I support). I suspect this was just seen as an opportunity to get that message out.

Q. Is it worth taking these measures?
These are forbearance measures. They're to temporarily lower monthly repayments to help those struggling to meet their repayments to get over the hump and sort something out.

Over the life of the mortgage though, you'll still pay what you were originally meant to, and likely more, especially if you permanently extend the term (as the longer you borrow for, the longer interest has to accrue).

So these are worthwhile forms of help if you're struggling, and should work and give you a break, but you should only take them if needed. We'll be doing detailed step-by-step help once all the rules are published.

Key mortgage help information

- What I said to the Chancellor: I explain in my podcast and you can also see a transcript
- Mortgage best-buy comparison: Our Mortgage comparison shows what's out there
- Remortgage guide: Help trying to find a new mortgage deal in our 34-page PDF Remortgage guide
- Find a mortgage broker: With rates rocketing, a mortgage broker is a crucial aide for many
- Ultimate Mortgage Calc: How much'll your rate rise, overpaying & more via our Mortgage calc
- Mortgage arrears help guide: Based on the info before these changes, our Mortgage arrears help

Q. What happens after the six months?
If people then want to continue the forbearance, it will be on a tailored basis, and can impact their credit file, just as it can now. The change here is the automatic six-month "get over the hump" issue, what happens after remains.

Of course with rates continuing to be high, this is not going to help everyone. The hope is it will give some people time to readjust their finances. Ultimately though, there is no getting around the fact that for all those on variable rates or coming off fixes, for the immediate future at a minimum, people are going to pay more (as that's the Bank of England's aim – to put up borrowing costs) and some will still face unaffordable bills.

Q. Is the new scheme mandatory?
This is pretty nuanced. Initially, we were told that technically the agreement only covers lenders that were in the room, which includes the chief executives of Lloyds Banking Group, Virgin Money, Santander, HSBC, NatWest Group, Nationwide and Barclays – though that covers a very substantial majority of UK mortgages.

However, other lenders have now also signed up to it, including TSB and many major building societies. You can see the full list in the Charter document on pages 11 and 12. This covers 85% of the mortgage market.

The FCA (which, let's be plain, is what really counts from now on – as the politicians will move on, but the regulator is the one that'll be managing this) tells me that in order to put this in practice it will need to make some enabling changes, some to the rules and some to the guidance. It says much of that should happen this week.

Once that is done, the FCA expects it to be common practice and other lenders to follow suit. Yet even if not, it says that under the new consumer duty starting this July, where all firms will have to be mindful of consumer outcomes, in practice it will expect to see the same outcomes, so in effect this will be mandatory (though we will be keeping an eye to ensure that we monitor any lenders that aren't playing ball).

Also as the Ombudsman adjudicates based on standard industry practice, and this will certainly be that, the likelihood is if necessary (let's hope it doesn't get there) this would be enforceable that way.

Obviously we will keep updating you, and we will be working on a detailed guide to the forbearance measures and the pros and cons.