UK Mortgage Lenders Agree on Measures to Help Struggling Borrowers

The U.K.’s largest mortgage lenders have agreed on measures to help struggling borrowers.

The new measures follow a meeting between the chancellor, Jeremy Hunt, and representatives of the country’s major mortgage lenders earlier this month.

In that meeting, Barclays, HSBC,  Lloyds, Nationwide, NatWest Group, Santander and Virgin Money agreed to measures intended to ease the burden on struggling mortgage holders, the government reported.

Most notably, lenders will offer tailored financial support to those who start to struggle with payments. Support measures could include extending the terms of mortgages to make monthly payments lower, a short-term reduction in monthly payments and accepting interest-only payments for a period.

The Financial Conduct Authority, which was also represented at the meeting and announced at the same time that it will consult on issuing guidance for how lenders can support borrowers impacted by the rising cost of living, as well as publishing new information for borrowers on the options and support available if they are struggling to make payments.

“Mortgage lenders, the FCA and the government will continue working closely together to ensure that the mortgage market works well for all homeowners, in particular those facing financial difficulty,” the government statement states.

With inflation hovering around 10% and the U.K. economy in a recession, the looming specter of mortgage defaults has caused the U.K’s “Big Four” banks to increase the size of their loan loss reserves in anticipation of a rise in bad debt.

For example, HSBC announced in its Q3 earnings statement that it has set aside over $1 billion for expected loan defaults, while Barclays has bolstered its loan loss reserves to the tune of around $300 million, increasing them from £120 million ($144.3 million) in Q3 2021 to £381 million ($458.2 million) in the same period this year.

What’s more, mortgage holders aren’t the only ones in the U.K. struggling to repay loans.

As the Bank of England recently reported, the proportion of small to medium-sized business (SMB) debt in arrears has increased from 2% to 2.4% over the past year.

This worrying trend has been fueled by the increased cost of borrowing as the central bank has raised interest rates this year and increased costs as inflation hits SMBs.

The average cost of borrowing for SMBs has nearly doubled from a rate of 2.5% at the end of 2021 to 4.7%

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