Managing customers in difficult times and the FCA’s guidance on payment holidays
26 Mar 2020 |
1 minute read
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Mortgage customers whose income has been affected by the Covid-19 pandemic are entitled to ask their lender for a mortgage 'payment holiday', according to the UK government. Additional guidance set out by the FCA (which can be seen here) supports this measure and strengthens the overriding principle of treating customers fairly, by simplifying the process to be used by customers when making such a request.
However, whilst the FCA has given a strong indication that a failure to accommodate that request could amount to a breach of various regulatory obligations, care still needs to be taken that customers are made fully aware of the impact a payment holiday will have.
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.
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.
Lenders are already receiving a huge volume of enquiries by customers keen to apply for a payment holiday. Even those customers who are not yet considering it may do so over the coming weeks and so demand is likely to remain high. Many lenders are being proactive in notifying customers of the availability of options to help them get through these uncertain times but the underlying message from the FCA is that any lender not upholding the regulatory principles to treat customers fairly and allow then to take advantage of these measure could face regulatory action. There is also obvious and significant reputational risk for lenders who do not engage positively in this new initiative.
Many lenders will require additional assistance through these unprecedented and difficult times. A mixture of the support measures being put in by Government and the expectations of financial regulators to assist customers and ease the burden on borrowers are likely to put pressure on your own resources.
We offer a range of flexible options that could assist you in dealing with the higher demand you are seeing from your customers at this time, to respond to their queries about engaging payment holidays or varying repayment provisions to avoid imminent financial default.
We can consider with you the best and most efficient way to support your own teams, and are happy to tailor a solution to suit your needs and demands, with flexible retainers or secondments so that we can provide bespoke legal advice and support to you as and when you need. We can also take it a step further, to become an extension of your own team to deal with customer enquiries when extra capacity is required.
