On 26 August 2020, the Financial Conduct Authority (FCA) published a guidance consultation containing additional draft guidance for mortgage firms in light of the COVID-19 pandemic.

It sets out the FCA’s expectations in relation to the fair treatment of mortgage borrowers who are experiencing financial difficulty as a result of the pandemic. This guidance is intended to supplement the FCA’s “Mortgages and coronavirus: updated guidance for firms” published in June 2020 (the current guidance), which is due to come to an end on 31 October 2020.

Under the proposed guidance, the FCA makes clear that firms must consider the appropriateness, and use, of a range of different short and long-term support options that best respond to the specific circumstances of their customers. This could include short-term measures, such as further periods of temporary payment deferral, temporary interest reductions or waivers of interest to cohorts of customers facing serious hardship, or longer-term measures, such as mortgage term extension or restructuring of the mortgage.

The FCA has also set out its expectations of firms in relation to Credit Reference Agency (CRA) reporting when dealing with customers who have benefitted from a payment deferral under the current guidance. It has made clear that it expects firms from 31 October 2020 to resume normal reporting from the payment status that was frozen at the start of the payment deferral period.

Collectively, these proposals raise a number of areas for mortgage lenders to consider, which we have listed below. Specifically, mortgage lenders should consider how to:

  • Define and rationalise what a suitable cohort for extended short-term forbearance is in practice
  • Communicate this to staff on the front-line and embedded to ensure customer treatment is fair and consistent for eligible customers
  • Recognise when a customer’s circumstances change to the extent that short-term forbearance is no longer appropriate
  • Clearly explain forbearance options to customers highlighting any implications of entering into a forbearance arrangement (including any impact on a customer’s credit file)
  • Manage forbearance arrangements when they come to an end and the options available to customers
  • Determine when a mortgage debt is no longer sustainable in the long term and when it may be appropriate to consider repossession action

Mortgage lenders should also note that the consultation period is short as the FCA wants to act quickly to continue to protect consumers during this difficult time. Firms have until 5pm on 1 September 2020 to respond. Finalised guidance is to be published by the FCA thereafter.