PS20/11: Removing barriers to intra-group switching and helping borrowers with maturing interest-only and part-and-part mortgages

Open consultation: CP20/13
Consultation closes
Policy statement and Handbook rules

We are amending our rules to help some borrowers in closed mortgage books to have more options. We are also issuing some new temporary guidance to help some borrowers with maturing interest-only and part-and part mortgages who are affected by the conditions created by coronavirus (Covid-19).

Read PS 20/11 (PDF)

We have issued an updated version of the guidance in relation to delaying the capital repayment until 31 October 2021 on interest-only and part-and-part mortgages that matured between 20 March 2020 and 31 October 2021. The updated guidance states that a customer can take advantage of a mortgage payment deferral after their mortgage has matured and will still be able to delay repaying their capital until 31 October 2021. We had previously stated that if a customer fails to make interest payments after maturity then the guidance would no longer apply but in the light of our updated guidance on mortgage payment deferrals we have clarified this.

Why we are amending our rules

In Consultation Paper (CP) 20/13, we set out our concerns about a possible barrier in our rules to borrowers in ‘closed’ mortgage books (books which are closed to new customers) switching to a new mortgage deal with a firm that sits within the same group as their current lender. We referred to this as ‘intra-group switching’.

We proposed amending our responsible lending rules to make it easier for borrows in closed books to be offered a new mortgage.

Adverse market conditions caused by the coronavirus pandemic have been making it difficult for some consumers with maturing interest-only and part-and-part mortgages. So we also proposed issuing temporary guidance for these borrowers to delay repaying the capital on their mortgage while continuing to make interest payments.

Overall, respondents supported both our proposals. So we are implementing the proposed rule change for intra-group switching. We are also implementing the proposed temporary guidance on interest-only and part-and-part mortgages as consulted on, subject to some small changes.

Who this applies to

These new rules affect:

  • mortgage lenders 
  • mortgage administrators, including those acting on behalf of unregulated entities
  • mortgage customers in a closed book
  • mortgage customers with maturing interest-only or part-and-part mortgages

The statement will also be relevant to stakeholders with an interest in the mortgage market, including:

  • credit reference agencies
  • trade bodies representing mortgage firms
  • consumers and consumer organisations
  • charities and other organisations  

Next steps

The rule on intra-group switching comes into force immediately. If you are a lender, you can start making use of this rule as soon as you are ready to do so.

The temporary guidance on maturing interest-only and part-and-part mortgages comes into force on 31 October 2020, and applies to eligible borrowers whose loans have matured between 20 March 2020 and will be maturing until 31 October 2021.

We expect lenders and administrators to begin telling eligible borrowers about the option to delay capital repayment promptly, and we discuss this point further in the third chapter of the paper.