FCA Proposes “Tailored" Support for Borrowers as Mortgage Holidays End

The Financial Conduct Authority (FCA) has said lenders should consider a range of support mechanisms, including waiving or reducing payments, for struggling homeowners once mortgage payment holidays end on 31 October 2020.

At the beginning of the pandemic in March, under the instruction of Chancellor Rishi Sunak, the FCA introduced three-month reprieves from bills for mortgage holders who were struggling to make ends meet. In June these mortgage holidays were extended, if needed.

However, the regulators’ guidance on mortgage payments due to end on 31 October. Most customers are expected to resume making mortgage payments by that point. The FCA has already instructed lenders to contact mortgage customers before their payment holidays lapse, giving them information about restarting payments and any additional support that’s available.

However, with the furlough scheme winding down, heavy job losses expected, the UK spiralling into recession and the threat of a second wave of the virus and further lockdowns looming, many homeowners may need additional or new support.

The regulator has thus proposed new guidance to support financially-strapped homeowners, including those who didn’t take mortgage holidays when they were available.

Under the proposals, lenders would offer “tailored support” for mortgage borrowers, with the regulator suggesting a range of long and short-term support measures. 

These may include extending the term of a customer’s mortgage and deferring payments. Lenders could also change the type of mortgage a customer holds, for instance switching them from an interest-only mortgage or to a mortgage deal with a different interest rate.

Lenders must be flexible in the support they offer and recognise that consumers may be facing financial uncertainty and be unable to commit to long-term arrangements, the FCA said. In these instances, short-term arrangements would be more appropriate.

Firms should also offer borrowers support in handling their finances, such as money guidance or referrals to debt advice.

However, the FCA has said that forbearance measures that extend beyond 31 October should be recorded on customers’ credit files, unlike the payment holidays issued earlier. Borrowers must be aware that deferring payments after that date will impact their credit score.

FCA interim chief executive Christopher Woolard 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.”