For the estimated 1.82 million customers who have so far taken advantage of the Covid-19 mortgage payment holiday, further guidance issued by the FCA will now enable an extension of the payment holiday for a further three months and, for those who have not yet applied for a payment holiday (or deferral as it is now more accurately described), the window to do so will continue until 31 October 2020.
The current ban on lenders commencing or continuing repossession proceedings over residential properties will also extend to 31 October 2020.
With this guidance now in force, it should be expected that a significant number of additional requests will be made and, potentially, drive a "second peak" when wider economic factors bite. If not already, lenders should be ensuring their customer contact exercises are compliant and modelled to fit with existing processes. The extension of the guidance will see lenders supporting some customers for the rest of the year, and possibly beyond if the guidance is further reviewed.
When responding to customers' requests, lenders should bear some key principles in mind:
- If a customer can afford to re-start mortgage payments, it is in their best interests to do so;
- However, if agreement between the lender and the customer cannot be reached, the lender should offer a payment deferral at the level sought by the customer;
- The payment deferral and subsequent repayment mechanism should not result in any negative reporting on credit files (provided they are adhered to), yet customers should be made aware that a wide range of factors (including such payment deferrals) impact credit files and scores; and
- Whilst non-regulated lending can fall within the remit of the guidance (e.g. buy to let loans), broadly, the guidance is intended to benefit those with residential/regulated mortgages – not general business borrowing.
The payment holiday scheme which came into force at the end of March 2020 was part of a series of measures put in place to help with financial hardship due to coronavirus. For those that sought immediate relief, the initial 3 month period will come to an end at the end of June. It will be welcomed by lenders that there has been some simplification of the FCA guidance since its original draft - following a short consultation period and input from consumer groups and the finance industry.
The overwhelming message is that where a customer can afford to resume payments after a payment holiday it is generally in their best interest to do so, but if a customer does not find that affordable, lenders can agree another form of support and should make customers aware of the self-help steps they can take to deal with their debts themselves or signpost them to external sources of debt advice.
As the economic fall-out of coronavirus begins to bite in the coming months, it is hoped that this industry-wide forbearance will alleviate the volumes of default and enforcement action that would follow. In the meantime, lenders should be adhering to the Guidance and signposting as much as possible so that if they are required to take action, it really is a last resort.