FCA proposes mortgage rule changes for borrowers in difficulty
The Financial Conduct Authority has proposed changes to its rules on how firms must deal with mortgage borrowers who are in difficulty, even in cases where the customer has not told the firm about their struggles directly.
In a consultation paper published today (May 25), the regulator outlined a number of steps it plans to take to support borrowers facing financial challenges.
The proposals follow on from the finalised guidance the FCA issued in March, in which it said it expects firms to offer struggling borrowers options such as extending the term of a loan or allowing reduced monthly payments for a temporary period.
Today’s mortgage-related proposals included a change to the existing guidance to allow firms more scope to capitalise payment shortfalls where appropriate.
Capitalisation of mortgage arrears or payment shortfalls is when a lender incorporates the payment shortfall into the future regular monthly repayment so that the shortfall is repaid equally over the remaining term of the mortgage.
The FCA said it is aware that firms have found it difficult to justify capitalisation even if they consider it to be appropriate in individual cases.
This is because of the current guidance which says firms should not agree to capitalise a payment shortfall except where no other option is available to support the customer.
Under its new proposals, the FCA plans to amend this guidance to make it clearer that firms can take a more balanced approach and agree to capitalisation where it is appropriate for the customer’s best interests.
In addition to this, the FCA is also proposing to improve disclosure for all customers in payment shortfall and to make clearer its existing requirement to record telephone calls with customers in payment shortfall, including video conferencing.
These proposed changes come in response to a number of issues previously identified by the FCA.
In spring 2021, the FCA’s ‘Borrowers in Financial Difficulty’ project identified a number of examples of firms falling short on the regulator’s expectations, which resulted in harm to consumers.
At the time, it noted that many firms were not providing forbearance to customers at risk of payment difficulties before they missed a payment.
In addition to this many firms were not effectively engaging with customers, including about money guidance and debt advice, and many firms were not tailoring forbearance options to individual customers.
When to offer support
Today’s proposals will mean firms should offer support to a customer where they become aware that the customer is, or may be, at risk of missing mortgage payments, even where the customer has not told them this.
“A firm may become aware, for example, if they are told by a third party, such as a debt adviser, or if a customer has multiple products with the same firm and misses payments on these,” the FCA said.
“Firms have discretion in how they engage with customers to communicate that support is available if needed, recognising that what will be appropriate will depend on the circumstances of the case, including the means by which the firm became aware.”
“However, to be clear, while we propose that firms must react to information indicating a customer is, or may be, at risk of payment shortfall, we do not propose to require firms to take steps to proactively identify such customers, as not all firms will have access to information which may indicate this,” the FCA added.
The consultation period will run until July 13, 2023.
The FCA plans to respond to feedback in the second half of this year, with the rules expected to enter into force in the first half of 2024.
jane.matthews@ft.com
