Mortgage borrowers hit financially by the impact of the coronavirus lockdown should receive ‘tailored support’ to help them get back on track with repayments, according to the market regulator, the Financial Conduct Authority (FCA).
It has issued a set of proposals that would extend support measures beyond 31 October, when the current framework of assistance for borrowers expires. It has asked for responses by close of business on Tuesday 1 September.
When previous proposals connected with the current crisis have been issued, they have been approved without demur by financial firms and implemented within weeks.
The FCA recognised early in the pandemic that customers with financial products such as mortgages, credit cards, loans and insurance contracts would need support if there were not to be widespread defaults and severe impacts for household finances.
It therefore introduced payment holidays and other measures to provide immediate, temporary support to several million individuals.
The regulator expects the majority of customers who have had a payment holiday to resume full repayment but it acknowledges that many will remain in financial difficulty.
Accordingly, it has published draft guidance designed help customers:
- who have benefited from payment deferrals under the current guidance and who continue to face financial difficulties, and
- whose financial situation may be newly affected by coronavirus after the current guidance ends.
Under the current guidance, which is scheduled to end on 31 October, borrowers are able to take a first or second three-month payment deferral on their mortgage payments.
The FCA is keeping the end-date of this scheme under review, but wants firms to start considering other support options, including extending the repayment term or restructuring the mortgage.
If consumers need further short-term support, the FCA says firms should offer arrangements for no or reduced payments for a specified period to give customers time to get back on track.
The regulator is keen that borrowers who can resume their mortgage payments should do so , but recognises this may not always be possible: “We understand that borrowers facing payment difficulties because of the pandemic will continue to face uncertainty and may also experience temporary interruptions in income.
“We are proposing that firms contact their borrowers in good time before the end of a payment holiday, and work with them to come up with a tailored plan to help get them back on track. Firms should not take a ‘one size fits all’ approach.”
It says that firms should prioritise giving tailored support to borrowers who are at most risk of harm, or who face the greatest financial difficulties: “Firms should also provide borrowers with the support they need in managing their finances, including through self-help and money guidance, and refer borrowers to debt advice if this meets their needs and circumstances.”
One contentious area is whether accepting financial support in the form of a payment holiday would result in a negative impact on the borrowers credit file. The FCA’s latest comment suggests accepting support will result in files being updated.
It says: “Where borrowers require further support from lenders, either at the end of payment holidays under our guidance, or where they are in need of support for the first time, this would be reflected on credit files in accordance with normal reporting processes.
“This will help to ensure that lenders have an accurate picture of consumers’ financial circumstances and reduce the risk of unaffordable lending. Firms should be clear about the credit file implications of any forms of support offered to borrowers.”
Anyone struggling with their mortgage is urged to contact their lender as a priority and not simply to stop making payments. Any payment holiday or temporary reduction in the amount paid each month should always be agreed in advance.