On 20 March 2020, the FCA published guidance for mortgage lenders and administrators aimed at helping them support customers during the Covid-19 crisis. Alongside this guidance, the FCA has also published a related webpage with information for mortgage customers.
The guidance builds on Principle 6 of the FCA’s Principles for business which requires regulated firms to pay due regard to the interests of customers and MCOB 2.5A.1 R which requires firms to act honestly, fairly and professionally in accordance with the best interest of its customers. In light of those principles, the FCA makes clear that firms should:
- in appropriate cases and where requested, grant customers a 3-month payment holiday; and
- not commence or continue with repossession proceedings and where repossession orders have already been obtained, refrain from enforcing it.
As noted in the FCA’s statement on 17 March 2020, some lenders have already taken action to grant flexibility on mortgage payments as a way of protecting consumers and the FCA’s guidance provides welcome clarity for firms, however further clarity may be required.
How long will the measures be in place?
The FCA has said it will review the guidance in the next 3 months in the light of developments regarding coronavirus and has signposted that it will issue amended guidance extending the period of the payment holiday if appropriate; but the FCA is silent on what it may do in relation to repossessions. In practice however, the inevitable backlog of business in the court system will mean that any revived cases are unlikely to be heard quickly which in turn will allow time for negotiations to take place.
Who does the guidance apply to?
The scope of the guidance, at first sight, seems unclear. Principle 6 and MCOB 2.5A.1 R only apply to regulated mortgages; however, it appears that it is the FCA’s intention that all mortgage lenders and administrators apply the guidance – whether they are regulated firms or not or whether the mortgages are regulated mortgages or otherwise.
The FCA has warned firms that acting in a manner inconsistent with the guidance in relation to unregulated mortgages (e.g. second charge business loans or exempt consumer buy-to-let mortgages) could have an adverse effect on satisfying the Thresholds for Conditions for authorisation.
Unregulated firms are reminded of their obligations to comply with general consumer protection law including the Consumer Protection from Unfair Trading Regulations 2008. The FCA said that its guidance is intended to describe the standards of skill and care the FCA consider may reasonably be expected of lenders in the mortgage market in the current exceptional circumstances of coronavirus and therefore non-compliance with the guidance by an unregulated firm could call into question whether the firm is complying with the requirements of the 2008 Regulations.
A firm should grant a payment holiday for 3 monthly payments to customers who are or could reasonably expect to experience payment difficulties as a result of circumstances relating to coronavirus. The payment holiday should be granted on request from such a customer, unless the firm can demonstrate it is reasonable and in the customer’s best interest to do otherwise. Firms can choose to make the enquiries they consider necessary in order to judge if a payment holiday is in the customer’s interests but the FCA has also said that it does not expect the firm to investigate the circumstances surrounding a request for a payment holiday.
A firm is also expected to be proactive and consider whether it should offer a payment holiday to customers, for example, if during an interaction with the customer, he or she provides information suggesting that they may be experiencing or could reasonably expect to experience payment difficulties as a result of circumstances relating to coronavirus.
Important features of the payment holiday guidance:
- Customers can apply for a payment holiday at any time before the guidance is reviewed in 3 months.
- Firms are not allowed to impose any fee or charge toin connection with the grant of the payment holiday.
- The payment holiday should not have a negative impact on the customer’s credit file. This may require firms to modify or suspend automated Credit Reference Agency reports during the payment holiday.
- The payment holiday will not start until it has been agreed with the lender – lenders need to respond as quickly as possible, but the FCA has acknowledged that due to a combination of high-demand and staff working from home, service levels may be slower.
- Firms are required to provide information to customers to enable them to understand the implications of a payment holiday and consequences (if any) for the total amount payable under the mortgage contract (e.g. whether interest will continue to accrue); the term of the mortgage contract (e.g. whether this will be extended); and amount of contractual monthly payments (e.g. whether payments will increase).
- The FCA appears to allow firms the flexibility to decide on the options to offer customers at the end of the payment holiday. However, where a firm seeks to capitalise sums covered by a payment holiday and there is any increase in the total amount payable under the mortgage contract at the end of the payment holiday, it will be required to provide the customer with information, in good time before the capitalisation, on the impact of capitalisation on monthly repayments or the mortgage term and the option to choose an alternative means of repaying the amount.
Can firms offer something else?
The guidance allows firms to offer something else if it is better suited to needs of a particular customer, e.g. a longer or shorter payment holiday, or reduced monthly payment, as appropriate in the customer’s circumstances.
Where a firm has already taken steps under MCOB 13 (arrears, repossessions etc.) it should consider whether further complementary measures to help the customer are appropriate. Whatever measure the firm decides are appropriate, it should bear in mind the overall objective of the guidance which is to help support customers during the Covid-19 crisis and the need to consider the particular circumstances of a customer.
The FCA has made clear that “no responsible lender should be considering repossession as an appropriate measure at this time.”
A firm should not commence or continue repossession proceedings and should refrain from enforcing repossession orders already obtained unless the firm can demonstrate clearly that the customer has agreed it is in their best interest.
A firm is required to keep customers informed and discuss with them the potential consequential impacts of their suspending any moves towards repossession, e.g. the impact on the amount the customer may get back if repossession is stopped and interest continues to accrue on the mortgage.
Firms should ensure that they document discussions with the customer clearly, particularly where the customer has agreed that the repossession should continue – why the firm and the customer consider repossession is the in best interest of the customer and the customer’s agreement with continuing repossession.
Firms should note that not continuing with proceedings is going to require a stay of those proceedings which can only be granted by the court. It is highly likely that the stay will be ordered but a formal application will need to be made. In addition, where a hearing is imminent and time is needed to put the repayment on holiday in place then the hearing should be adjourned. The Courts and Tribunal Service has published guidance on applying for adjournments at https://www.gov.uk/guidance/applications-to-adjourn-civil-and-family-hearings-because-of-coronavirus-covid-19.