FCA confirms repossessions ban extension despite risks

FCA confirms repossessions ban extension despite risks
 Credit: Jason Alden/Bloomberg

The Financial Conduct Authority has confirmed the proposed two-month extension to the repossessions ban in its mortgages and coronavirus guidance despite concerns of equity erosion.

Under the regulator’s tailored support guidance updated today (January 27) firms should not enforce repossessions before April 1, except in exceptional circumstances.

The FCA proposed extending the ban earlier this month in light of the worsening pandemic and the government’s tighter coronavirus-related restrictions.

In a feedback statement also published today, the regulator noted lenders were concerned about the consumer impact of increasing balances and equity erosion, which could lead to a worse financial outcome when repossession eventually took place.

The FCA responded that the guidance set out its expectations for firms to ensure they keep customers fully informed and discuss the potential consequences of suspending repossession.

For example, firms should “explain the effect of remaining in the property on the customer’s remaining equity if the amount owed is increasing or the value of the property subsequently falls”.

The regulator acknowledged the risks of equity erosion from delaying repossession, which may be exacerbated where the interest rate is higher, but the FCA concluded that, on balance, the risks of firms enforcing repossessions in the current environment outweighed these risks.

But overall most respondents supported the proposal on the extension, including all consumer representative bodies and both trade bodies that responded.

The FCA added that consumer representatives were concerned the guidance would need to be extended again if coronavirus-related restrictions continue.

In response the regulator said it would keep the guidance under review as the situation continued to develop.

Keith Richards, chief executive of the Personal Finance Society, said they supported the extended repossessions ban. 

Mr Richards said: “We know that, with the development of vaccines, there is a realistic path back to a much more stable economic environment over the coming year.

“However, this will take time, and it is realistic to give homeowners who are in financial difficulties more time to stabilise their finances before activity over repossessions resumes.”

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