The FCA has announced proposed additional guidance (the Proposed Guidance) designed to ensure firms provide tailored, bespoke support to mortgage borrowers who continue to face payment difficulties as a result of coronavirus. Stakeholders are expected to provide their comments by 5pm on Tuesday 1 September.
At the start of the pandemic, payment deferrals had been provided to mortgage borrowers, providing immediate and temporary assistance. The majority of mortgage customers who have received a payment deferral are expect to resume full payments, although many will remain in financial difficulty, potentially exacerbated by job losses or pay cuts.
The current guidance, detailed in our earlier article, will continue to provide support for those impacted by coronavirus until 31 October 2020, allowing customers a first or second three month payment deferral. The FCA anticipates that the current guidance will expire on 31 October 2020, but will keep this under review depending upon how the wider situation develops.
The Proposed Guidance is designed to ensure that consumers, including those who have already received payment deferrals, as well as those whose financial situation has been newly affected by coronavirus after the current guidance ends, receive the support they need. The support under the Proposed Guidance is expected to be tailored to the consumer, where firms are required to consider the appropriateness, and use, of a range of different short term and long term options reflecting a consumer’s specific circumstances. Such support could include extending the payment term, restructuring the mortgage or introducing a period where no or reduced payments are expected, with priority given to mortgage borrowers who are at most risk of harm, or who face the greatest financial difficulty.
This was echoed by Christopher Woolard, Interim Chief Executive of the FCA who acknowledged that consumers require a more bespoke solution to issues they may be facing: “It is important that consumers who can afford to resume mortgage payments should continue to 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 them get back on track. Firms should not take a ‘one size fits all’ approach.”
Firms are also expected under the Proposed Guidance to provide mortgage borrowers with the support they may need in managing their finances, such as self-help or money guidance, or referring them to debt advice services if this meets their needs and circumstances. Should mortgage borrowers require support from firms either at the end of a payment deferral or for the first time, this would be reflected on credit files, and firms must be clear about the impact any support may have on a mortgage borrower’s credit file. This would enable firms to have an accurate picture of consumers’ financial position and reduce the risk of unaffordable lending in future.
The PRA also made a statement following publication of the Proposed Guidance, clarifying its approach to IFRS 9 and capital requirements. The PRA statement explains that at the end of a payment deferral granted as a result of coronavirus, if the mortgage borrower is not able to resume payments in full immediately with all deferred sums either paid in full or capitalised, tailored forbearance arrangements provided in accordance with the Proposed Guidance should be considered. The PRA states that tailored forbearance arrangements are likely to be a good indicator of significant increase in credit risk (SICR), credit impairments or defaults as forbearance was prior to the coronavirus crisis. However, the statement also goes onto discuss circumstances in which loans subject to forbearance or payment deferrals would or would not be regarded as an indicator of SICR, although this would be dependent upon individual circumstances.
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