Recent regulatory developments of interest to financial institutions.
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COVID-19: FCA update on mortgage payment holidays
On 25 March 2020, the UK Financial Conduct Authority (FCA) updated its webpage, Mortgages and coronavirus: our guidance for firms. The webpage sets out guidance for mortgage lenders and administrators, and home purchase providers and administrators, on the fair treatment of customers in light of COVID-19.
The FCA has updated the section of guidance relating to payment holidays to clarify that, where a customer is experiencing or reasonably expects to experience payment difficulties as a result of circumstances relating to COVID-19, and wishes to receive a payment holiday, a firm should grant this for three monthly payments. An example of circumstances in which a payment holiday may be appropriate is where there is or will be a reduction in household income that can be used to make mortgage or home finance payments.
A firm may decide to put in place an option other than a three month payment holiday, if it is appropriate to do so in the individual circumstances of the case and the firm reasonably considers it as being in the best interests of the customer. This could include a payment holiday of fewer than three months if, for example, the expected loss of income is temporary, or a reduced monthly payment if, for example, the loss of income is partial. The FCA guidance does not prevent firms from providing more favourable forms of assistance to the customer, such as reducing or waiving interest.
The guidance provides that a firm should ensure the manner in which it will seek to recover any sums covered by a payment holiday and any increase in the total amount payable under the mortgage contract once the payment holiday has ended is compatible with Principle 6 of the FCA's Principles for Businesses. In particular, a firm should not capitalise on these amounts without having given the customer information on the impact of doing so on their monthly payments or the term of their mortgage, and the option to choose an alternative means of repaying the amount (such as a lump sum). The information given should be clear and provided in good time before the capitalisation takes place.
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