The Financial Conduct Authority has said mortgage lenders should support struggling customers in a range of ways that suit their needs.
Guidance published by the FCA has set out options that companies can use to support their customers to manage their monthly mortgage payments amid the soaring cost of living.
The FCA is seeking comments on the draft guidance by December 21.
It sets out the flexibility that companies have to support customers who have missed monthly mortgage payments or are worried they may not be able to make future payments.
It covers options including extending the term of the mortgage, temporarily switching to interest-only payments, moving to a different interest rate or temporarily making reduced monthly payments.
“Most borrowers are able to keep up with their mortgage payments and should continue to do so," said Sheldon Mills, executive director of consumers and competition at the FCA.
“But if you’re struggling to pay your mortgage, or are worried you might, you don’t need to struggle alone.
"Your lender has a range of tools available to help, so you should contact them as soon as possible.”
Making changes, even temporary ones, may result in higher monthly payments in future or paying back more overall.
Mortgage borrowers should consider carefully any steps they take.
The FCA attended a meeting hosted by the UK government, alongside mortgage lenders, to discuss what support some borrowers may need.
It said it was closely monitoring the mortgage market and would continue to act so that consumers receive the support they need.
The Treasury said Chancellor Jeremy Hunt met banking chief executives, consumer champion Martin Lewis and the FCA on Wednesday.
The banking chiefs, who cover more than 70 per cent of the market, recommitted to protect mortgage holders by enabling them to switch to a new fixed-rate mortgage, without a new affordability test, when their current deal ends and if they are up to date with their payments. This covers 97 per cent of the market.
Mortgage lenders should also provide customers with well-timed information before any change to rates and offer specific help to those who start to struggle with payments.
Lenders should also ensure that highly trained and experienced staff are on hand to help.
“We expect every lender to live up to their responsibilities and support any mortgage borrowers who are finding it tough right now," Mr Hunt said.
“The major concern for people’s mortgages — and the knock-on impact of mortgage increases on rents — is the situation in the spring, when we expect interest rates to be higher, energy prices to be rising, and other cost-of-living impacts," said Mr Lewis, the founder of MoneySavingExpert.com.
“So the most important thing is that now the conversations have started about what flexibility and forbearance measures can be put in place to help those struggling.
“The commitments today set a good direction, and after helpful conversations I’m hopeful that further progress will be made.
"For those worried about making mortgage repayments, the sooner you communicate with your lender the better.”
Demand for rental homes rises as sales market slows
The call to help mortgage borrowers comes as demand for homes in the rental sector continues to rise as home buying drops off, surveyors say.
This is contributing to upward pressure on rental costs at a time when house prices have been falling month-on-month, findings from the Royal Institution of Chartered Surveyors indicate.
A net balance of 35 per cent of property professionals saw a pick-up in rental demand in November, while a balance of 27 per cent reported a decline in landlord instructions.
The mismatch between demand and supply continues to drive rents higher, with a net balance of 43 per cent of contributors anticipating rental prices moving higher over the coming three months.
Looking at the house sales market, a net balance of 38 per cent property professionals reported a fall in demand from house hunters.
House sales were also down, with a balance of 35 per cent of professionals reporting a decrease.
An overall balance of 25 per cent survey participants observed house prices falling rather than rising.
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Prices were said to be retreating across most parts of the UK, according to Rics, with the latest feedback especially downcast in the south-east and south-west of England.
For now, prices continue to edge higher in Scotland and Northern Ireland, but the pace of growth is significantly subdued compared with earlier in the year, the report said.
Over the next 12 months, an aggregate net balance of 61 per cent of property professionals surveyed expect further declines in house prices rather than increases.
“The imbalance in the rental market remains significant as landlord instructions continue to fall, and is consistent with further increases in rents, even if the momentum does appear to be slowing just a little," said Simon Rubinsohn, chief economist at Rics.
The Rics report also quoted the views of property professionals.
“Definitely signs that the troubles in the economy are now impacting sales in the housing market, said one, who is in the West Midlands
“Many more chains are breaking, everything is taking longer to sell and prices are starting to fall. More challenging times lie ahead.”
Another, in Northern Ireland, said: “Many buyers are adopting a ‘wait and see' approach.
“Now the autumn statement is out of the way, we should see normality return, albeit after the Christmas period is over.”
An Edinburgh estate agent said: “Despite the economic situation, we have also seen very few fall-throughs in agreed sales over the last three months.”
