On 25 March 2020, the FCA updated its web page providing guidance for mortgage lenders and administrators, and home purchase providers and administrators, on the fair treatment of customers in the light of the COVID-19 pandemic.
The section on payment holidays has been updated providing that where a customer is experiencing or reasonably expects to experience payment difficulties as a result of circumstances relating to COVID-19, and wishes to receive a payment holiday, a firm should grant a customer a payment holiday for 3 monthly payments, unless it can demonstrate it is reasonable and in the customer’s best interest to do otherwise. The FCA gives an example that a payment holiday may be appropriate where there is or will be a reduction in household income that can be used to make mortgage or home finance payments.
The web page adds that a firm may decide to put in place an option other than a 3 month payment holiday, if it is appropriate to do so in the individual circumstances of the case and the firm reasonably considers it is being in the best interests of the customer. The FCA adds that this could include a payment holiday of fewer than 3 months if, for example, the expected loss of income is temporary, or a reduced monthly payment if, for example, the loss of income is partial. This guidance does not prevent firms from providing more favourable forms of assistance to the customer, such as reducing or waiving interest.
The FCA states that a firm should ensure that the manner in which it will seek to recover any sums covered by a payment holiday and any increase in the total amount payable under the mortgage contract once the payment holiday has ended is compatible with Principle 6. In particular a firm should not capitalise these amounts without having given the customer information on the impact of doing so on their monthly payments or the term of their mortgage, and the option to choose an alternative means of repaying the amount. The information given should be provided in good time before the capitalisation takes place, and make clear that the customer could pay more over the lifetime of the mortgage as a result of capitalisation, compared to an alternative means of repaying these amounts, such as in a lump sum.