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Coronavirus - Recent FCA measures to support mortgage customers – UK

  • United Kingdom
  • Coronavirus
  • Payment systems and digital commerce
  • Financial services - Retail finance

08-06-2020

The FCA has recently announced a range of measures to help mortgage customers through the COVID-19 pandemic, where they may be facing a loss of income or payment difficulties, in addition to other recent measures to assist so-called “mortgage prisoners”. This note summarises these announcements and the new FCA guidance regulated firms are expected to follow.

Mortgage payment holidays

The FCA confirmed on 2 June that mortgage customers should be offered a full or part payment holiday for a further three months where they are experiencing financial difficulties as a result of the pandemic. For those customers that have yet to apply for a payment holiday, the FCA guidance states that customers should be able to apply to firms for a mortgage payment holiday up to the 31 October 2020. The new FCA guidance comes into force on 4 June. When implementing this guidance, the FCA has reminded firms that they should be particularly aware of the needs of vulnerable customers and consider how they engage with them. For customers that may have difficulty accessing online services (such as digital channels), firms should make it easy for customers to access alternative ways to engage with them.

A ‘payment holiday’ means an agreement between a borrower and a lender that they will not have to make mortgage payments for a set amount of time. Payment holidays are designed to help borrowers experiencing payment difficulties because of the coronavirus situation. The amount owed by the borrower will not change, and the interest will continue to be charged on the amount owed. At the end of a customer’s payment holiday the firm should communicate with the customer and should offer a range of options for how the missed payments will be repaid, if they are able to resume payments. The missed payments may be resolved in a number of different ways, such as by increasing the monthly payments slightly after the payment holiday period, or extending the term of the mortgage, or perhaps a combination of the two. If the customer is still in financial difficulties at the end of the payment holiday, lenders may need to consider a further payment holiday, or other arrangements that take account of the customer’s circumstances – such as forbearance, or re-mortgaging and potentially switching to a more affordable product.

Interest will ordinarily continue to be charged during a payment holiday, but the FCA’s earlier guidance has made clear that lenders should not charge additional fees or charges as a result of granting a payment holiday. The FCA also expects all regulated mortgage lenders and administrators to comply with their COVID-19 guidance; where companies are unregulated (and technically out of scope of FCA guidance) but make decisions that affect mortgage borrowers, the FCA has said they expect them to adopt this guidance on a voluntary basis.

Repossessions

Alongside the mortgage payment holidays that lenders must offer, the FCA guidance also extends the current ban on lender repossessions through to the same 31 October 2020 date, to enable people to self-isolate if they need to; this applies to all mortgage borrowers at risk of repossession, whether or not their financial difficulties result from the pandemic. Where a lender has already obtained a repossession order the FCA expects lenders not to go ahead with repossessions, unless a borrower wants the repossession to proceed (e.g. the borrower has already committed to plans for alternative accommodation). Where a repossession is halted, interest will continue to be charged, so borrowers may get less back if the property is repossessed in the future and then sold by the lender. If property prices fall, as generally expected, then borrowers may receive even less back or nothing if sold for less than is owed; these issues should be discussed with borrowers who are in any repossession process that is temporarily halted during the pandemic.

Vulnerable customers and CRA reports

Where a customer seeks a mortgage payment holiday, firms should also provide customers with self-help steps they may take, or direct them to sources of debt advice, if they are concerned about managing their money generally during the pandemic, or require broader assistance with getting their finances back on track.

The FCA has also reminded lenders that customers experiencing payment difficulties and agreeing a payment holiday due to the pandemic should not have negative reports added to their credit reference agency files. However, when making new lending decisions lenders may still use information from other sources, such as bank account statements (which may show reduced or recent missed mortgage payments due to a payment holiday), to inform their decisions, so mortgage payment holidays will potentially still impact customers’ creditworthiness.

Mortgage prisoners

On 28 October 2019 the FCA introduced new rules to reduce regulatory barriers to consumers who are up-to-date with payments, and not looking to borrow more, switching to a more affordable mortgage, were introduced. The aim of these new rules was to reduce the barriers to switching these consumers face now or could face in future and allow mortgage lenders to undertake a modified affordability assessment for eligible consumers, and required lenders and mortgage administrators to notify certain categories of customers of the possibility that they may be able to switch.

The FCA has now released further guidance relating to those rules that required firms to write to customers who may be eligible to switch to a new mortgage product to let them know about their switching options. As a consequence of many lenders’ current inability to offer new switching options due to difficulties in the market (e.g. valuations not being conducted) due to the pandemic, the FCA has now indicated it would be wrong to require letters to be sent to consumers at this time. The FCA is therefore extending the window during which they expect firms to contact consumers about switching options by 3 months, to 1 December 2020, as the FCA does not want mortgage prisoners to receive communications encouraging them to switch, when there are no suitable products available for them.

The FCA has also written to mortgage lenders and administrators managing closed mortgage books about variable rates. The FCA has set out their expectation that lenders critically review their variable rates of interest against their funding costs, contracts terms and any other factors that may apply and take any necessary action (e.g. to cut variable rates if they are excessively disproportionate to their costs of funding). This measure should also help alleviate the position for mortgage prisoners who may otherwise be trapped in closed products and paying less than competitive variable interest rates.