Risks often appear in the most well-intentioned measures. The Mortgage Charter, which launched a couple of weeks ago, is in place to alleviate the distress many borrowers will encounter in the coming months. While Bank Base Rate is reckoned by Swap rates at least to reach 6.5% by early next year, arrears will begin to increase over the coming period. But the Charter brings with it jeopardy for borrowers and lenders alike.

Clearly the cost of borrowing is rising quickly. The measures offered in the Charter are reminiscent of the pandemic relief measures and include swapping to Interest Only and extending the term. All this can be requested with no detrimental impact to the borrower’s credit score (but the data will be available to the credit agencies in any event). Putting aside whether the request is legitimate, there is an obvious danger here that those at the end of this relief period will actually end up with a larger financial problem than they might have had otherwise.

Extending the term is an increasingly common tactic to address affordability concerns with many borrowers now using 30- or 35-year terms. UK Finance figures recently revealed the number of first-time borrowers taking 35-year duration mortgages doubled over the twelve months to March this year.

Running out of cash means borrowers will likely raid available savings to make up shortfalls. If pension income or contributions are used to make up the shortfall that will mean the savings gap and provision for old age are both affected. And of course, for some, the 25% tax free lump sum may prove the solution of choice for addressing any shortfalls. This is not in itself unusual, but it will mean there is less to play with come retirement.

This medicine will hopefully cure not kill for the vast majority of borrowers and you may be tempted to wonder does any of this matter? Well, it does if you consider the concept of detrimental borrower outcomes in the light of the new Consumer Duty rules coming into effect in July.

The FCA has been quick to remind participating lenders that it is a voluntary measure which means the onus for its correct use lies squarely with the lender. Furthermore, if a borrower pleads for this kind of support when they may not actually need it and it is granted, how does one prove it was for the best when the outstanding interest payments will be greater. Worst case, this may be in some cases good money chasing bad.

My gut feeling and sincere hope is that the scenarios I am portraying here will be unlikely and therefore very few in number, but Consumer Duty changes everything for the risk managers in lenders. The transaction is only part of the outcome, and that focus is in truth unexplained or unknown at the moment. Until these issues are tested in earnest, we will unlikely know how they will be managed by the regulator. What we can be certain of is that moving through the credit cycle will mean boardrooms across the country will need to understand the processes and systems (last used post 2007) will unlikely be up to the mark now. Just as rising interest rates suddenly challenged product launch and withdrawal processes that had lain idle for over a decade, so our collections and forbearance processes will need recalibrating too.

Funders will need reassuring; evidence will be paramount for them and regulators. The next few months will be a test.

Tony Ward, Non-Executive Chairman, Fortrum