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Credit files to be affected under latest FCA mortgage proposals

Credit files to be affected under latest FCA mortgage proposals
 Credit: REUTERS/Chris Helgren

The Financial Conduct Authority (FCA) has asked firms to provide “tailored support” to mortgage borrowers who continue to face payment difficulties as a result of the coronavirus crisis.

However, under the proposals credit files will reflect if borrowers required further support from lenders, either at the end of their payment holidays, or when they were in need of support for the first time.

According to the FCA, this will help ensure that lenders have an “accurate picture” of consumers’ financial circumstances and reduce the risk of unaffordable lending.

Under the regulator’s current guidance, which it expects to end on October 31, borrowers can take a first or second payment deferral, which will not have a negative impact on the borrower’s credit file.

The FCA said while the majority of borrowers who have taken a payment deferral are expected to resume full repayment, many will remain in financial difficulty.

Therefore it has asked firms to consider the “appropriateness, and use, of a range of different short and long-term support options to reflect the specific circumstances of their customers”, such as extending the repayment term.

The regulator also said firms should offer arrangements for no, or reduced, payments for a specified period of time to allow borrowers to “get back on track” where further short-term support is needed.

Christopher Woolard, interim chief executive at the FCA, said: “It is important that consumers who can afford to resume mortgage payments should do so.

“However, we understand that borrowers facing payment difficulties because of the pandemic will continue to face uncertainty and may also experience temporary interruptions in income.

“We are proposing that firms contact their borrowers in good time before the end of a payment holiday, and work with them to come up with a tailored plan to help get them back on track. Firms should not take a ‘one size fits all’ approach.”

Firms should prioritise giving tailored support to borrowers who are at “most risk of harm” or face the “greatest financial difficulties”, according to the regulator.

Borrowers should also be given the necessary support in managing finances, such as through self-help and money guidance, and be referred to debt advice if appropriate.

Comments from stakeholders on the draft guidance are open until September 1.

chloe.cheung@ft.com