ResidentialOct 23 2020

FCA forces lenders to give ‘breathing space’ to borrowers

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FCA forces lenders to give ‘breathing space’ to borrowers
Credit: Chris Ratcliffe/Bloomberg

Borrowers with maturing interest-only or part-and-part mortgages will be allowed to delay capital repayments until next year, despite concerns that this could lead to worse consumer outcomes.

In a policy statement published today (October 23) the FCA said it was issuing temporary guidance, whereby lenders must allow certain borrowers to continue making interest payments, and delay repayment of the capital on their mortgage up to October 31, 2021.

The guidance applies to borrowers with interest-only and part-and-part mortgages that have matured between March 20, 2020 and now and will be maturing until October 31, 2021, who are up-to-date with their payments.

According to the regulator, the guidance seeks to minimise the potential harm to borrowers in the “unique, adverse market conditions” arising from the pandemic.

But in a consultation on the guidance, some firms and trade bodies, and a group that represents consumers, were concerned that borrowers may choose to delay repaying the capital on their mortgage unnecessarily.

According to the regulator, the respondents felt this could lead to worse consumer outcomes and future complaints if those borrowers still cannot repay by October 31, 2021.

In response, the FCA said it proposes to keep the guidance as a “consumer-exercised option” for all eligible borrowers who choose to take advantage of it.

It said: “If a borrower chooses to take advantage of this guidance then a firm must allow them to. This gives borrowers who want it certainty and breathing space until 31 October 2021, and protection against repossession if they are not able to repay the capital.”

The regulator added firms should take measures such as making the risks of delaying capital repayment clear to borrowers, and explain that it is in the customer’s interest to repay now if they can.

Dominik Lipnicki, director at Your Mortgage Decisions, supported the new guidelines but also warned of their misuse.

He said: "I broadly support the FCA initiative to help borrowers who are unable to pay back their capital, the last thing that we would want to see during the pandemic is people being repossessed.

"That said, I would imagine that the October 2021 deadline could be further extended if the pandemic continues well into next year.

"I would also like to see what steps will be taken to ensure that only those borrowers that need the delay do apply. We have seen that many borrowers applied for a mortgage holiday when they really didn’t need to and that caused some to pay more and of course for longer."

The temporary guidance will come into force on October 31, 2020 when the current coronavirus measures end.

Intra-group switching 

The FCA is also implementing its proposed rule change for intra-group switching with immediate effect.

The regulator is amending its responsible lending rules for borrowers whose mortgages are in a closed book that sits within the same financial group as an active lender.

Lenders have previously had to conduct an affordability assessment before offering a new mortgage deal to borrowers who sit within their group, but with a different lender.

In its policy statement published today (October 23) the regulator said it wanted to remove a potential regulatory barrier that might lead to borrowers experiencing financial harm if it unnecessarily restricts them from being able to access rates offered by another lender in the same group.

According to the FCA, the rule change should help some closed book customers, who are within the risk appetite of the relevant lender, switch to a new mortgage that may be more affordable.

The regulator added that it hoped some firms may choose to make use of the rule change where it was within their risk appetite to do so, although it noted that lending was a “commercial decision”.

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