Mortgage Arrears and Forbearance: What UK Advisers Need to Know About Their Obligations

When a client contacts you because they are struggling to meet their mortgage payments, the dynamic of the relationship changes. The case that was a successful placement six months or two years ago is now a stress point, and the adviser who facilitated the mortgage is the first person the client thinks to call — even if, strictly speaking, the lender is the party with the formal obligation to respond.

Understanding what lenders are required to do, what the Mortgage Charter adds, and what your own responsibilities look like under Consumer Duty is increasingly important. Arrears are not as widespread as they were at the peak of the cost of living squeeze, but with £20.1 billion of mortgage balances in arrears as of Q1 2026 — even as the headline rate has continued to fall — there are clients in every adviser's book who are managing tightly, and some who will not manage to keep managing.

The state of mortgage arrears in 2026

FCA data published for Q1 2026 shows that mortgage arrears have been declining. The value of outstanding balances with arrears fell 1.7% from the previous quarter to £20.1 billion — the lowest level since Q3 2023 — and was 6.3% lower than a year earlier. The proportion of all regulated mortgage balances in arrears held at 1.1%, one tenth of a percentage point lower than a year ago.

The trajectory is positive, but the absolute numbers are not small. £20 billion represents real people with real financial difficulty, and the FCA's own research has been clear that many of them do not proactively seek help — they absorb the stress, miss one payment, then another, and reach out only when things have deteriorated significantly. For advisers, that pattern has a practical implication: if you have clients whose finances you know were stretched during the rate cycle, a proactive check-in call is not intrusive — it is good service.

The Mortgage Charter, introduced in June 2023 with 49 signatories covering around 90% of the mortgage market, has provided measurable support. Between July 2023 and December 2025, around 311,000 mortgages had their monthly payments reduced through temporary interest-only periods or term extensions — around 3.5% of all regulated mortgage contracts. In November and December 2025 alone, around 13,000 mortgages saw payment reductions under these measures. The scale suggests that for a significant number of borrowers, the Charter options prevented arrears that would otherwise have developed.

What MCOB 13 requires of lenders

MCOB 13 is the chapter of the FCA Handbook that deals with arrears, payments shortfall, and repossession. It is directed at mortgage lenders and administrators, not intermediaries — but understanding what it requires helps advisers set realistic expectations with clients in arrears and understand what a lender is doing when they engage.

The core obligation under MCOB 13 is that firms must deal fairly with any customer who is in arrears or is likely to fall into arrears. That framing — "likely to fall into arrears" — is significant. The FCA's expectation is that lenders should be proactive, not reactive. A customer who is paying but whose budget is visibly under strain is not a case to be parked; it is a case that warrants early contact and support.

When arrears develop, MCOB 13 requires lenders to communicate promptly, explain what the arrears mean in practical terms (the amount, the impact on the account), provide information about where the customer can get independent debt advice, and consider whether any arrangement can be reached. Lenders are also prohibited from levying charges for arrears management that are disproportionate to the cost of the activity — a rule that exists because some historic practices involved fees that compounded the borrower's difficulty rather than supporting resolution.

The FCA's thematic review of long-term mortgage arrears (TR18/5) set out good practice in some detail. Firms were expected to maintain regular contact with borrowers, document what forbearance was offered and why, and keep the file current even in cases where no payment arrangement had been reached. The same expectations apply today. The Consumer Duty has, if anything, raised the bar: lenders should now be actively monitoring whether borrowers in forbearance are receiving a good outcome, not simply processing the account.

What forbearance actually looks like

Forbearance is not a single product or arrangement; it is a category of support that lenders can offer to help a borrower manage a period of financial difficulty without entering a formal repossession process. The specific measures available depend on the lender, but common arrangements include the following.

A payment deferral allows a borrower to pause or reduce payments for a defined period, with the deferred amount added to the balance or addressed later. This was used extensively during the pandemic under the government's mortgage holiday scheme and has been adapted in various forms since. Capitalising missed payments into the loan balance is a related approach.

A temporary interest-only arrangement reduces monthly payments to interest only for a period, stopping capital repayment but not adding to the overall debt. Under the Mortgage Charter, eligible borrowers can access a six-month interest-only period without an affordability assessment from Charter signatories. Outside the Charter framework, lenders retain discretion but the FCA expects them to consider this option seriously for borrowers in difficulty.

A term extension reduces monthly payments by spreading the remaining balance over a longer period. Again, the Mortgage Charter allows eligible borrowers to extend without an affordability check, with the option to revert to the original term within six months. Of the roughly 311,000 mortgages that used Charter support through December 2025, the data shows that only 1,584 term extensions were subsequently reversed — suggesting most borrowers who took this route did not find themselves in a position to revert quickly.

A repayment arrangement is an agreement to pay the current monthly payment plus an additional amount towards the accumulated arrears, over an agreed timescale. This is often suitable where the borrower has resolved the immediate income problem and can service the mortgage again, but needs time to clear what fell behind.

In cases of severe or prolonged difficulty, lenders may consider other options including a planned sale of the property, a voluntary surrender, or — in cases where the property is worth more than the outstanding balance — a move to a more affordable alternative. The Mortgage Charter also includes a commitment not to force repossession within the first 12 months of a missed payment, except in exceptional circumstances.

The adviser's position under Consumer Duty

The formal obligations under MCOB 13 sit with the lender. But Consumer Duty does not draw a sharp line at point of sale — it asks firms to consider the client's outcomes throughout the life of the product, where the firm has an ongoing relationship.

For advisers who maintain ongoing client relationships, that has real implications. If you know a client is in difficulty, or is likely to be, you have a Consumer Duty reason to engage. That does not mean you are required to take over the lender's arrears management role — but it does mean that routing the client to the right support, explaining their options clearly, and documenting the conversation all matter.

The FCA has made a specific point about the interaction between advice and arrears. In its March 2026 mortgage regulatory priorities report, it noted that some borrowers in difficulty were not aware of the options available to them under either the Mortgage Charter or standard lender forbearance. Advisers who can bridge that information gap — clearly explaining what the borrower can ask for, what the Mortgage Charter provides, and where they can get independent debt advice — are delivering something genuinely valuable at a moment when the client most needs it.

Consumer Duty also creates a reason to think about this proactively. If interest rates have moved materially since a client's mortgage was arranged, or if their circumstances have changed, an annual review call serves a dual purpose: it maintains the relationship and it surfaces any financial stress early, when there is still time to act.

How to handle an arrears conversation with a client

When a client calls because they are in arrears or struggling to pay, the conversation has several components.

The first is fact-gathering. How many payments have been missed? Has the lender been in contact? What has the lender offered? Has the client responded? Getting a clear picture of where the account stands before you start offering options is important — some of the most useful calls you can make are simply to confirm to a client that they have not been contacted about possession proceedings yet, and that there is time to engage constructively.

The second is signposting. Clients in arrears are often anxious and sometimes not fully aware of what support is available. Make sure they know they can contact the lender directly, that the lender is required under MCOB 13 to engage fairly and consider forbearance options, and that free debt advice is available from organisations including StepChange and Citizens Advice. If their lender is a Mortgage Charter signatory, explain the specific options available — particularly the temporary interest-only and term extension routes.

The third is documentation. Record the conversation, what you advised, and any actions the client agreed to take or that you agreed to support. If a client later raises a complaint about how an arrears situation was handled, having a clear contemporaneous record is essential.

The fourth is follow-up. An arrears situation rarely resolves in a single conversation. If you have agreed to check in, do it. If you have referred the client to their lender or a debt advice service, confirm they made contact. Consumer Duty's expectation that advisers support good client outcomes extends to situations like this.

What advisers should not do

There are some common missteps worth noting.

Do not give definitive assurances about what the lender will offer. Forbearance decisions are made by the lender; you cannot guarantee an outcome. Clients sometimes hear what they want to hear, and if an arrangement they believed was certain does not materialise, you can find yourself in a difficult position.

Do not provide debt advice beyond your permissions. If a client has significant unsecured debt alongside the mortgage, the arrears conversation may surface that. Directing them to a specialist debt adviser is appropriate; attempting to provide that advice yourself, if you do not hold the relevant permissions, is not.

Do not treat the arrears case as concluded once the immediate stress is resolved. A client who has agreed a repayment arrangement with their lender will need ongoing support as that arrangement progresses. The Consumer Duty expectation is not just that a fair outcome was reached at the point of the arrears conversation, but that the client is receiving a good outcome over time.

A note on record-keeping

Arrears cases are more likely than others to result in complaints. The Financial Ombudsman Service receives a consistent volume of complaints from mortgage borrowers who feel they were not dealt with fairly during a period of financial difficulty. For advisers with any involvement in those cases — whether at the original advice stage or during the arrears period — a clear file is protective.

Record the client's original circumstances at the point of advice, any subsequent contact where financial difficulty was discussed, the information you provided about support options, and what actions were agreed. If your case management system allows you to log client contact as well as application activity, use it. A system that can produce an audit trail of every interaction — not just the mortgage submission — is meaningfully better for arrears risk management than one that only records the deal.

For a detailed look at what good case management looks like across the life of a mortgage relationship, see how to reduce admin in your mortgage practice.

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FCA mortgage arrears data is published quarterly at fca.org.uk. Mortgage Charter uptake data was last updated March 2026. MCOB 13 is available in full in the FCA Handbook at handbook.fca.org.uk.