Comment: Rainy days always come eventually


Preparing for a rate increase may not seem a high priority right now but customers and lenders should do so anyway

In a report published last September, the Building Societies Association estimated that at least 1.85 million homeowners had never experienced an interest rate rise.

Meanwhile, 52 per cent of borrowers said they would struggle with mortgage payments when rates did increase.Since April 2014 we have required firms to consider the effect of future rate rises as part of their affordability assessment for new mortgages.

This assessment must also consider the Financial Policy Committee’s recommendation on appropriate interest rate stress tests for borrowers.

Against this backdrop, we carried out a review to understand what strategies lenders had in place to mitigate the impact of an interest rate rise on those less able to cope with an increase in their monthly payment.

We started the review in early 2016, at a time when a rise was anticipated.

Since then rates have been cut and we recognise that preparing for an increase may not seem like a high priority.

Nevertheless, we want to share the results to assist firms and customers in preparing for when rates eventually start moving in the other direction.

When we published our previous thematic report in 2014 on mortgage lenders’ arrears management and forbearance (TR14/3), we asked firms to consider which of their borrowers were most likely to be affected by potential interest rate rises and to put in place appropriate strategies for treating those customers fairly.

Of the nine firms reviewed, most have acted. However, we found firms were at different stages in developing their strategies and more work needed to be done.

We recognise customers also have a role to play in taking responsibility for their finances.As such, we have shared our findings with consumer representatives with the aim of encouraging borrowers to consider the impact of a rate rise.

We recognise the challenges firms face in developing strategies to engage customers appropriately at the right time.

However, by acknowledging the number of customers likely to be impacted and developing strategies in advance, firms should be in a better position to help those less able to cope with an increase in monthly payments.

Philip Salter is director of retail lending at the FCA