With the lockdown continuing, the mortgage holidays introduced in March by the Treasury and FCA rules have now been extended until 31st October 2020. This new guidance has been brought into force this week.
Lenders were obliged to grant a 3 month mortgage holiday, first brought in on 20 March 2020, to relieve financial hardship on mortgagees who were finding themselves in difficulty in paying their mortgage. In line with this, the FCA introduced ‘guidance’ which essentially was a number of rules for lenders. One being the prohibition on repossession of a home by the lender. In addition, the rules ensured that there was no detrimental effect on the credit rating of the customer due to non-payment and that they did not financially suffer from deferments granted.
Under the FCA guidance, the 3 month mortgage holiday was only granted to those who were suffering from financial hardship due to the coronavirus pandemic. Any mortgagee who were struggling with payments before or unrelated to the COVID-19 had to arrange a solution separately under the provisions of the CONC and MCOB sections of the FCA.
However as time has progressed, and the UK only emerging from lockdown in tiny steps the financial impact is likely to last a lot longer than the three months originally suggested and hence the FCA and Treasury have updated their guidance to mortgagees and lenders and have extended the mortgage holiday for an additional time period up until 31st October 2020.
These are not ‘rules’ but ‘guidance’ that has been set out by the FCA. However, if the ‘guidance’ is not adhered to then regulatory action will be taken as per MCOB 2.5A. IR ‘A firm must act honestly, fairly and professionally in accordance with the best interests of its customers’ and in addition in PRIN 11 it expects self-reporting to take place if an offence is committed.
Deferral of Payments
The FCA outlined that a ‘partial payment deferral’ is where the lender allows the customer to ‘make reduced payments of any amounts’ and a ‘full payment deferral’ is where the lender allows to ‘make no payments’. However, the instalments will still need to be repaid, the debt remains but payment is just postponed. A lender may in some cases agree to not write off interest for a period of time.
If an existing mortgage holiday is in place and the customer is still in financial difficulties due to COVID-related issues, the mortgagee and lender are advised to discuss the matter thoroughly with all the necessary information and look to extend the holiday further. It is up to the mortgagee to approach the lender to request the extension. The timelines will be tailored to what is appropriate for the mortgagee. The guidance will be the same as the original holiday.
Treating the customer fairly after COVID Lockdown ends
The FCA has categorised the customers into those who will be able to recommence their full payments, those who will be still in difficulties due to the pandemic and those who had existing problems before the lockdown.
However, the FCA has stipulated that the customer should be treated fairly, even after the payment deferral period comes to an end. A full consultation needs to take place between the borrower and the lender before the payment holiday ends. It is up to the customer to be proactive and if they don’t respond then the lender can assume that the borrower will recommence their full payments once the mortgage holiday ends. With those that can’t resume payments then the lender should offer a further deferral on a full or partial basis (or an alternative solution that is more appropriate in the ‘customer’s best interests).
Implications of the Holiday Extensions – Temporary support vs Long term effects
The long-term effect of payment deferral could significantly impact on the overall debt burden of the customer. This has to be a major consideration and the FCA are keen to ensure that other solutions need to be explored that ‘meet the customer’s needs’ and hence not lead to an unsustainable debt burden.
Possession proceedings should not be started nor continued before 31st October 2020.
For further advice on Mortgage Holidays please contact Anna Duffy and the Property Team on 0151 230 1219