The UK’s financial watchdog has told banks to offer a range of “tailored” repayment options to mortgage borrowers hit by coronavirus when the ability to claim three-month payment holidays is withdrawn at the end of October.
In new proposals to help customers who continue to face repayment difficulties, the Financial Conduct Authority said lenders must continue to provide repayment relief support measures, but consider the appropriateness of different “long and short-term” measures. In future, these should include extending the repayment term of a mortgage to reduce the monthly repayments, or restructuring loans.
In March, after UK chancellor Rishi Sunak announced three-month payment holidays for all mortgage borrowers needing help in the pandemic, the regulator issued guidance to banks, saying these should be granted with no need for supporting evidence.
In May, the Treasury and the regulator then extended the scheme, allowing borrowers to seek a second, or a new three-month repayment break from June onwards.
Since this payment relief was first offered, 1.9m customers have taken advantage of it, according to banking industry body UK Finance — a number equivalent to one in six of all UK mortgage holders.
However, the FCA has now said it expects the majority of customers who took a payment holiday to resume full repayment, and has instructed banks to consider the “appropriateness” of continued support to those still in financial difficulty.
Consumers will still be able to claim a first or second three-month payment deferral up until October 31, but the option will then expire, assuming there is no change to “the wider situation”. From then on, borrowers facing a continued or new constraint on their income due to the virus may still be allowed to make reduced payments or no payments — but only for “a specified period”.
Christopher Woolard, he FCA’s interim chief executive, said: “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.”
Under the new guidance, lenders have been told to prioritise this tailored support for mortgage borrowers most at risk of harm, and to offer money guidance or referrals to debt advice services.
Borrowers have also been warned that if they do seek further support from their lenders, either at the end of an existing payment holidays or for the first time, their request will be reflected in their credit files, which are used to judge future loan applications.
When mortgage payment holidays were first introduced in March, borrowers were not warned for several months that taking one could affect their credit files. Information did not appear on the FCA website until late May — potentially leaving millions to apply for temporary relief thinking their creditworthiness would be unaffected.
Now the FCA has told companies they “should be clear about the credit file implications of any forms of support offered to borrowers”.
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