The Financial Conduct Authority has called on mortgage lenders to consider what “tailored support” individual borrowers might require when their Covid-19 payment holidays end.
The FCA’s current arrangements give borrowers until October 31 to request a three-month payment holiday, should their finances have been adversely affected by coronavirus. The regulator says it does not anticipate extending this deadline, and its latest announcement, made on August 26, is concerned with the next steps to be taken by lenders once these payment holidays end.
The FCA clearly states that “the majority of customers who have had a payment holiday are expected to resume full repayment”, but then goes on to acknowledge that “many will remain in financial difficulty”.
It may now be several months since the height of lockdown, but for many consumers, the toughest times might still lie ahead. The Government’s support to employees’ salaries via the furlough scheme is being reduced, and the scheme is scheduled to end entirely at the end of October. While most sectors of the economy have been permitted to resume trading in some form, there are often still Government restrictions relating to certain sectors, or other reasons why customers are reluctant to return. With sectors such as retail, entertainment and hospitality expected to be amongst the worst affected, there are predictions that as many as five million people in the UK could become unemployed.
The regulator suggests that forbearance options lenders might offer to individual borrowers when payment deferral periods end include:
- Extending the term of the mortgage
- Re-structuring the mortgage
- Offering reduced payments for a further period
- Offering a further period where the borrower does not have to make any payments
- Referring the borrower to appropriate sources of advice and guidance
Any additional support a lender decides to offer would be reflected on the borrower’s credit report in the usual way. Lenders must make it clear to borrowers what the likely impact on their credit report is when they offer any forbearance.
Borrowers who are at the greatest risk of harm, or who are in severe financial difficulty, should be treated as priority customers by their lenders. The FCA suggests that this might mean firms using more experienced staff to deal with the most complex arrears and forbearance cases, especially if firms need to recruit additional, less experienced, staff to meet the increased demands for forbearance. The FCA recognises that many staff will be working remotely because of the pandemic and that firms may need to adapt their processes to provide support and oversight of the staff dealing with customers seeking forbearance.
As with every activity under the FCA’s remit, firms’ senior management need to be able to demonstrate – e.g. via appropriate management information – that borrowers seeking forbearance are receiving fair outcomes.
Christopher Woolard, Interim Chief Executive at the FCA, said:
“It is important that consumers who can afford to resume mortgage payments should do so. However, 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.”
Because the FCA has previously taken action in forcing lenders to grant payment deferrals to those affected by the pandemic, the number of customers experiencing mortgage arrears is actually lower than was the case 12 months previously.
The latest data from trade association UK Finance show that more than two million mortgage payment deferrals have been approved, and that more than one million of these are still in force. 73,580 homeowner mortgages were in arrears in the second quarter of 2020, which is 3% lower than was the case in the same period in 2019.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article