Forbearance

What forbearance offers a borrower

Forbearance is the support a lender provides to a borrower who is in, or is heading towards, financial difficulty. Rather than pursuing the contractual payment regardless of circumstance, the lender agrees a temporary or longer-term change that makes the debt more manageable. The aim is to help the customer through a difficult period and, wherever possible, back to a sustainable footing, while protecting the lender's prospect of eventual repayment.

Forbearance is not a single mechanism but a toolkit. The right measure depends on whether the customer's problem is short-term, such as a gap between jobs, or longer-term, such as a permanent drop in income. A good lender matches the remedy to the cause, and reviews it so that temporary arrangements do not quietly become permanent without proper reassessment.

• Reduced payments for a defined period
• A payment holiday or short pause in payments
• Extending the term so monthly instalments fall
• Capitalising or rescheduling arrears into the ongoing balance
• Accepting interest-only payments for a time, where appropriate

Assessing what a customer can genuinely afford

Effective forbearance depends on an honest view of the customer's income and essential outgoings, so that any new arrangement is actually affordable. Many firms use the Standard Financial Statement, a common budgeting format developed for the debt-advice sector, to capture a consistent picture of a household's finances. This helps ensure that the payment agreed reflects what is left after essential costs, rather than an optimistic figure the customer will struggle to meet.

Open Banking has made this assessment faster and more accurate where the customer consents to share data. Seeing categorised income and spending directly, rather than relying on recalled figures, helps a lender set a realistic payment and spot signs of wider distress, such as reliance on other credit. The better the affordability picture, the more durable the arrangement, which benefits both parties.

Regulatory grounding and reporting consequences

Forbearance is woven through the FCA's rules. CONC requires firms to treat customers in default or arrears difficulties with forbearance and due consideration, and the Consumer Duty expects firms to provide support that meets customers' needs and avoids foreseeable harm. Firms are expected to tell customers where free, independent debt advice is available and to avoid pressuring them into unsustainable commitments.

Borrowers should understand that forbearance can have consequences for their credit file. Depending on the arrangement, reduced or missed payments may be reported to credit reference agencies and can affect future borrowing, even where the lender has agreed the lower payment. A reputable firm explains this clearly before the arrangement starts, so the customer can weigh the immediate relief against the longer-term effect. Handled transparently and reviewed regularly, forbearance is one of the most effective tools a lender has for keeping a struggling customer out of default and on a path back to financial health.