Lender update: Mortgages and Coronavirus...what next?

The FCA has published a draft of its proposed “Additional Guidance to firms on Mortgages and Coronavirus”, likely to be approved in September 2020.

The draft guidance is intended to enhance Principle 6 and 7 of the FCA handbook, and focuses on customer outcomes and clear communication between a firm and its customers.

It is an important statement of the FCA’s approach and the expectations it imposes on regulated firms. All mortgage lenders and their customer facing suppliers will need to carefully consider the guidance and plan for its implementation.

Key Provisions

The guidance is to apply to exceptional circumstances due to the pandemic and the impact of this on the financial circumstances of mortgage customers.  It is supplemental to the ‘Mortgages and Coronavirus: Updated Guidance’ published in June 2020.  The guidance deals with the FCA’s expectations once the June Guidance no longer has effect.

New Outcomes: 

The FCA say that, along with the standards they already require, firms must deliver a set of new Outcomes. These centre on: appropriate forbearance; recognising and dealing appropriately with any vulnerable customer; clear communications between a firm and its customer; and the expectation that a firm will support their customers’ needs as well as providing, or signposting to, relevant money guidance or self-help tools, or a referral to debt advice. 

Payment Deferrals: 

Importantly the guidance asks that, where a payment deferral period has been reviewed prior to the new guidance coming into force, the decision made in relation to that customer should be reviewed again to ensure that the approach is in line with the new guidance.

Any deferred payments cannot be considered a payment shortfall (arrears) where the deferred amounts are repaid before the next contractual payment is due.  The deferred payments can be repaid in a lump sum or capitalised.  If the deferred sum is not paid before the next payment falls due the customer has to be informed in writing that the deferred sum will be included in the payment shortfall / arrears amount going forward and their credit file must not be affected by the deferral. 

Firms are also required to maintain a record of the deferred sum added to the payment shortfall / arrears so this can be identified as accruing in exceptional circumstances.

Possession action

A firm should not consider repossession action if the payment shortfall / arrears are purely a result of a payment deferral. In addition, a firm should take into account that the payment deferral was agreed and that the customer may need more time to address the arrears.

The draft guidance allows firms to start or continue possession proceedings in accordance with MCOB13 and the applicable pre-action protocol.  However, there are 2 circumstances where a firm should not apply for or enforce a warrant of possession:

Where the customer, or another person residing in the property, is self-isolating or shielding; and

If there is a local or nationwide lockdown in force.

Challenges for Firms

The draft guidance recognises that there may be challenges to meeting the expectations at a time when many customers may be seeking assistance.  For that reason the guidance allows for the use of automation and digital tools in some areas, and the use of all communication channels. 

The guidance also suggests that firms may want to identify a group of customers, coming to the end of a payment deferral period, for whom short term forbearance may be appropriate (the cohort approach) and follow a written policy for this approach.  It also recognises that firms may need to recruit less experienced staff to deal with the high volume of enquires but puts the onus on the firm to have proper training and oversight.

The draft guidance can be found at https://www.fca.org.uk/publications/guidance-consultations/mortgages-and-coronavirus-additional-guidance-firms

For more information, please contact Myra Scott (Partner) or Thomas Lillie (Partner) in our Lender Services Practice Group.