Managing customers in difficult times and the FCA’s guidance on payment holidays

The FCA says that failure to follow the its guidance on mortgages and Covid-19 could be a breach of FCA Principles, MCOB, the FSMA Threshold Conditions and Consumer Protection from Unfair Trading Regulations. By doing so the FCA seeks to make the guidance bite on both regulated and unregulated mortgages, and regulated and unregulated lenders (including where mortgages have assigned).

The measures are broad enough, therefore, to capture any credit agreement secured against residential property, be it a home owner loan, buy to let or other investment loan, Islamic financing arrangement, or business borrowing.

The current guidance provides for customers who request it to receive a 3 month payment holiday. The FCA will review the current 3 month period within the next 3 months and, if necessary, may extend the period. (Some jurisdictions have already extended to 6 months and a similar move is certainly possible in the UK).

Of course it is also open to lenders to agree more (but not less) favourable terms with a customer.

The new rules apply whether or not a customer is up to date with their mortgage payments. If a customer says that they are (or potentially will) experience payment difficulties in the current circumstances, and request a payment holiday, then this should be sufficient to entitle them to a 3 month payment holiday.

In other words if the customer self-certifies their position lenders should take that at face-value. No investigation into the circumstances should be undertaken. Lenders are also encouraged to consider whether additional measures might be required for a customer already in arrears on their account.

Lenders cannot add any fees or charges for allowing a payment holiday, but customers still need to understand the financial effect on them. We suggest (as a minimum) a breakdown of the interest that will continue to accrue and an illustration of the revised monthly payment when the payment holiday ends.

Lenders must ensure that non-payment under an agreed payment holiday does not get recorded in such a way that it negatively impacts the customer’s credit score

Alongside the payment holiday relief, there is a moratorium on commencing or continuing possession proceedings. The Government is putting in place emergency legislation to prevent landlords from evicting any tenants for at least a 3 month period, which is in part the reason that the 3 month mortgage payment holiday has been extended to buy to let mortgages.

It remains best practice for lenders to consider with the customer whether there are other options available that might be more suitable than a payment holiday, bearing in mind that the mortgage balance will not decrease and interest will continue to accrue even when payments are not being made.

Again, it is voluntary and open to lenders to reach agreement with customers as to any different mortgage products or extension to the mortgage term which might be more appropriate, provided that the agreed outcome is in the best interests of the customer.