As the impact of Covid-19 continues to affect all aspects of our lives, one area which has caused many homeowners concern is their ability to meet their mortgage repayments.
Following the Government's recent announcement on measures to help assist and alleviate financial pressures on those with mortgages, the Financial Conduct Authority ("FCA") has now published further guidance for mortgage lenders, mortgage administrators, home purchase providers and home purchase administrators. The FCA has provided specific guidance on two keys areas - mortgage payment holidays and repossession.
Mortgage payment holidays
Those experiencing financial difficulty and thus unable to meet their mortgage repayments for their primary residence and/or investment properties as a result of the Covid-19 pandemic, can now benefit from an initial three-month mortgage payment holiday, without having to pay any additional fees or charges. Interest will, however, continue to accrue and will be payable by the borrower.
The FCA has also specified that the lender should:
- not investigate the particular circumstances around why the borrower requires the payment holiday, and simply permit it
- provide adequate advice to the borrower in relation to taking the payment holiday
- and ensure that there are no negative implications on a borrower's credit score as a result of taking the payment holiday.
The updated guidance specifically outlines that lenders are unable to proceed with repossession proceedings, even if a repossession order has already been obtained (prior to the Covid-19 outbreak) but has not yet been enforced or if a repossession order is continuing. This guidance outlines an approach which is arguably a stark contrast to the levels of flexibility usually taken by lenders in relation to enforcement and repossession proceedings.
Significantly, the guidance impacts not only regulated but also to some extent unregulated mortgage contracts. The guidance specifically highlights that the Covid-19 pandemic is an exceptional circumstance, and will, therefore, warrant lenders to take extra care when advising consumers and carrying out transactions.
The mortgage payment holiday for a lender providing a regulated mortgage operates in accordance with Principle 6 of the FCA Principles, which states that a lender "must pay due regard to the interests of its customers and treat them fairly".
Any lender which provides unregulated mortgage contracts (such as an investment property loan under article 61A of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001) will be governed by general consumer protection law, specifically the Consumer Protection from Unfair Trading Regulations 2008. A failure to comply with the new measures implemented by the Government and the guidance issued by the FCA will breach the requirement under the 2008 Regulations for traders to exercise special skill and care towards consumers as reasonably expected. It is important to note the Lender is still required to comply with the regulations even if there has been an assignment of rights under the mortgage contract to a non-authorised person.
It is important to note for borrowers that a degree of caution must be exercised when considering the Government's measures and the guidance from the FCA, and lenders should work through with the borrower what the most suitable approach is for their circumstances. Although a mortgage payment holiday looks attractive on the surface, any forbearance will still require full repayment of arrears.