The FCA has published updated Payment Deferral Guidance outlining enhanced support that should be available to mortgage borrowers experiencing payment difficulties due to the Covid-19 pandemic. The FCA also published Tailored Support Guidance which explains support firms should provide to mortgage borrowers who have come to the end of a payment deferral.
The new rules come into force from 20 November 2020, however the FCA has urged lenders to act proactively and start providing enhanced support sooner, if they are able to do so.
When the pandemic took hold in March, the FCA implemented measures to provide immediate and temporary assistance to mortgage borrowers to help them deal with financial difficulties caused by coronavirus. This initially provided a payment deferral of up to 3 months to borrowers but was re-evaluated in June as the pandemic evolved. In June, borrowers could take a second deferral of 3 months, up to 6 months in total. In September, the FCA published additional guidance setting out the tailored support firms should provide to borrowers who benefited from a payment deferral and remained in financial difficulty, as well as those newly affected once the June guidance expired on 31 October 2020.
In preparation for England’s second lockdown announced earlier this month, the regulator moved quickly to publish proposals to support mortgage and consumer credit borrowers impacted by coronavirus, discussed in our previous article.
Payment Deferral Guidance
This guidance is an updated version of the FCA’s September guidance, detailed above. It remains in force until 31 July 2021 except that firms should continue to act in accordance with Section 4 of the Payment Deferral Guidance (Dealing with customers at the end of a payment deferral period) for those who have had a deferral but have not been dealt with under that section by that date.
Who can apply?
The FCA strongly emphasises that payment deferrals should only be taken when absolutely necessary. If a borrower can afford to keep up with their mortgage payments, then it is in their best long-term interest to do so. It states that the following would be able to access payment deferrals:
Borrowers who have not yet had a payment deferral will be eligible for a deferral of 6 months in total.
Borrowers who have previously had, or currently have a payment deferral, can top up the payment deferral to 6 months in total. The total deferrals may not exceed 6 months. This includes borrowers receiving tailored support and those behind on payments.
Borrowers who have already had 6 months of payment deferrals will not be eligible for further deferrals. In this situation, firms will provide tailored support where appropriate which might include an option to further defer payments.
Applications for initial or further payment deferrals must be made by 31 March 2021. After that date, borrowers will be able to extend existing deferrals to 31 July 2021, provided these extensions cover consecutive payments and subject to the maximum 6 months permitted.
Borrowers who have not yet deferred any payments but anticipate they will and may need the full 6 months are encouraged to apply in good time before their February 2021 payment is due.
The FCA has also confirmed the ban on repossessions remains in force, and that no one should have their home repossessed without their consent until after 31 January 2021.
Payment deferrals will not be reported as missed payments on a borrower’s credit file. However, the FCA warns that this does not mean the borrower’s ability to access credit will be unaffected in the future as when lenders are making lending decisions, they will be able to take this information into account.
Tailored Support Guidance
The Tailored Support Guidance is an updated version of the September 2020 guidance and supplements the Payment Deferral Guidance. It will remain in force until varied or revoked.
Firms should first offer borrowers the support they are eligible for under the Payment Deferral Guidance before providing support under the Tailored Support Guidance.
The Tailored Support Guidance intends to support firms in treating borrowers affected by coronavirus fairly, helping them get back to a more stable financial position. Firms should:
Ensure borrowers receive appropriate forbearance that is in their interests, after considering individual circumstances.
Support borrowers through the difficulties and uncertainty, including by considering their other debts and essential living costs.
Recognise vulnerability and respond to the particular needs of those who are vulnerable.
Have systems, processes and adequately trained staff, with any staff incentives aligned with providing good customer care, providing help and assistance needed.
Provide support in managing finances, including self-help and money guidance. Firms should signpost or refer customers to debt advice if this meets their needs and circumstances.
Further support could include extended payment deferrals, such deferrals would not be subject to the Payment Deferral Guidance but would be provided by a firm as tailored support. Therefore, such circumstances should be reported to credit files. As tailored support may be reported on a credit file, lenders should highlight this eventuality to the borrower.
In its Feedback Statement (FS20/17), the FCA noted that the majority of responses received were supportive of its proposals. The FCA explained that in publishing its final guidance, it had made several changes, including amendments to clarify:
The relationship between the Payment Deferral Guidance and the Tailored Support Guidance, and when firms should follow each.
When firms should offer payment deferrals, including for those who have already taken a payment deferral under any current or previous guidance and those who are experiencing payment difficulties and need support for the first time as a result of coronavirus.
How payment deferrals taken under the Payment Deferral Guidance interact with the FCA’s guidance published in PS 20/11 (Removing barriers to intra-group switching and helping borrowers with maturing interest-only and part-and-part mortgages). The Payment Deferral Guidance confirmed that as well as accessing payment deferrals before maturity, these borrowers would be able to access payment deferrals after maturity without affecting their ability to delay the capital repayment.
An indefinite solution to what was considered a short term problem?
Given the previous support offered to borrowers affected by coronavirus, it is unsurprising that as the crisis has evolved, the FCA has continued to extend guidance it previously saw as a short-term ‘fix’. However, it appears to acknowledge that payment deferrals cannot be continued indefinitely for all borrowers, and a more tailored approach will need to be adopted for those who will continue to be affected after they have benefitted from the maximum period a payment deferral could be provided for. While the FCA has stated that it will continue to keep the support available under review, it will increase pressure on firms required to provide such support and refrain from repossessions during this time.
Article co-authored by Anna Burdzy.